Long Term Chart Analogues

I saw this chart again on Stock Twits, an old favorite.  It’s due to fellow Canadian Dr. Jean-Paul Rodrigue.  The ramp, the “mania phase,” and the double top reminded me of the NASDAQ bubble I posted earlier.

BubbleChartA freehand chart like this is a good way to illustrate market psychology without being tied down by actual cases.  I did the same thing when I presented the H&S pattern way back at the beginning of this blog.

I like the way Rodrigue’s chart shows an accumulation phase, then public attention, and finally reversion to the mean.  Here is Dr. Flumiani’s chart, after Livermore:

LivermoreLivermore applied this model to speculation in individual stocks, not (necessarily) the general market.  We call his cylinder a “coil” today, both terms attributing a third dimension to the chart.  Legend has it that Livermore went short at the top in 1929.

Both models are well supported by the dotcom crash, below.

DotComBubbleHere we see a clear accumulation phase, just like Livermore’s cylinder, then consolidation below 2900.  The gap up through 2900 and then the round number 3000 brought in the public, and set off the “mania” phase.  All three charts have that second peak which is the final clue before the crash.

This is not a pattern I actually trade.  Marcel Link, in his book, discusses the psychology of trying to catch singular events.  I just put up the charts because they’re interesting.  Tom McClellan has found a number of long term pattern analogues, like this one:

HysteriaThe first time I saw this chart, I thought it was nonsense.  You can always line up today’s bull market with another bull market from the past, but Tom makes a pretty good case.  I still don’t think it’s a guide for timing, though.  If you want to do that, I recommend the O’Neil method or the ADX method I posted before.

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