Monday, February 18, 2008

Logarithmic Time - $NDX - Part 1


Many views of the stock indexes have been created with both normal price plots and logarithmic price plots. Trendlines have been drawn on these to show channels and flags and pennants and bullish and bearish wedges (and so forth). Now to show a new perspective, let's take the $NDX from October 8th, 2002 (major bottom at "0.00000" at the left of the plot) and display it with the price action plotted with the logarithm of time from the 10/08/02 date to the present, and see how it looks.

What you see is the emergence of a new growth channel (with the "overthrow" of the 10/31/07 top at 2239.23), invisible by any other plotting mode commonly in use. If the price action continues to respect this heretofore unseen channel, and if we have, as I believe, a cycle bottom coming up around 3/3/08, well, on that date the lower trendline is at about 1537 on the $NDX..It probably won't get there on this cycle, but there's little doubt in my mind that this channel is probably real...and anyone out there can create a small spreadsheet for themselves to find these hidden trendlines and channels in all stocks and indexes. You merely plot from a major bottom or top, putting price action on a natural log time scale and all normal rules of trendlines and channels apply...

My plot uses a proprietary log scale, which has other very useful properties, but you should be able, with experimentation, to get similar results with more generic natural logs, if your focus is limited to trendlines and channels...

2 comments:

John said...

Mark,,

Very, very informative. thanx

old john

bill102205 said...

Mark: Very good explanation. McHugh
is also looking for a turn late Feb or early March.