I made a swag yesterday from the Dow skyrocketing, I assumed the current chart pattern would align with healthy historical chart patterns -- it did for short term chart patterns, but the long term chart patterns are an entirely different story. Counter intuively, it seems yesterday's performance was a setback to the Dow's long term performance, compare it to the previous close. Reference the 3, and 6 month simulations below, percentages below 70% are a weak indicator.

1 month(s) = 71%
2 month(s) = 76%
3 month(s) = 61%
6 month(s) = 61%

Dow is progressing well, it seems yesterday's data kicked several positive short term patterns in gear, the following stats are from yesterdays data.

1 Month(s) = 78%
2 Month(s) = 69%
3 Month(s) = 69%
6 Month(s) = 69%

Keep in mind these signals are not operating on today's data, today's "bargain hunting", which skyrocketed the Dow up 247 would further strengthen the signal, unfortunately, we have to wait till 9:00 PM when the feeds at datawink refresh. Signals will refreshed at that point.

Huge bets were made by mysterious investor(s) with 1.78 billion on SPY and 10 billion on EuroX that the two markets will tank 30% by the third week in September. More info regarding the SPY position can be found here. On a similar sentiment, the S&P 500 simulations for 8/26/2007 to 9/26/2007 are having an unsually low probability (47%) of an uptrend. The Dow simulation for the same time period above is 57%, another unsually low probability of a uptrend.

Dow performance projections have degraded further for this month to a significant 50%, we may see a re-test. The October 1978 pattern is back (Fig. 1) -- stock up on the motion pills. Bear in mind, what ocurred after; returns from Oct. 31, 1978 to Oct. 31, 1979 was +41.26%. The two month projection is also weak at 61%. The upside? The the 3 month projection is 92%, and the one year is 76%, perhaps, a light at the end of the tunnel.

Fig. 1 October 1978, the 15th most similar chart pattern to the Dow's current chart

We are here

We were here before

And we may go here again

The feds may have averted a repeat of the October 1978 chart pattern, where the S&P dropped 15%, the $38B pumping last week seems to have broken the unhealthy pattern, at-least for now.

The 1978 october chart pattern is no longer on the radar -- you may recall it from last time. The two month chart is at 61% probability of an uptrend, up from the bearish 53% last time. The general short term health of the market has also improved.

From observing the similar chart patterns, it seems oil, Dow, and the S&P 500 will trend up, while gold will trend down. The analysis is broken down by oil, gold, Dow, and S&P 500. Their probability of an uptrend is recorded under the time frame (1 month, 3 month, and 6 month) column. The stocks were randomly picked.

With the assitance of machine vision, undocumented chart patterns are discovered effortlessly -- in seconds, and expressed in plain language -- in one sentence.

The patent pending process, finds similar historical price charts, and differentiates their prices for assessing trend consistency. If 75% or more trend in unison, it's a significant statistic. As an example, within the figures below, a one month prognosis of the Dow is performed.

The service is available for analysis on companies with a financial market history of 5 years or more. Don't use it on companies or indices whose market history are less than this, the signals will not be optimum.

The first step is to provide the security and forecast range (e.g. 1 month, 2 month, etc.), to which, a current price chart is displayed, whose time frame is based on the forecast range. Fig 1. Displays the chart being searched for, symbol, and forecast range.

Fig 1. The Dow symbol and its current chart -- chart searching for, whose time frame is based on the forecast range

Association Mode, charts similar to the red chart are displayed in green, sorted by most to least similar from left to right. Notice in Fig 2. the similar appearance to the red chart. The date stamp can be cross referenced to historical news for fundamental analysis.

Fig 2. Association mode, the most visually similar monthly price chart

Causation mode, price projection, whose time frame is based on the forecast range. The price causation is correlated in this mode. Notice in Fig 3. the chart date stamp, which immediately proceeds the similar chart in similarity mode.

Fig 3. Causation mode, the outcome, the month proceeding the similar price chart

A price probability projection for the red chart above. A result lower than 60% is an extremely weak signal -- bearish, while 75% or above is a firm signal -- bullish.

Fig 4. The results are posted succintly as a summary in the following, which reports the probability of price movement in today's chart

Tremendous insight is realized when discrete signals are synthesized exposing scenarios that are usually hidden. I will give an example of this, next time.

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Posted by ron on August 12, 2007 6:32:00 PM EDT #

As of today, this month's Dow chart pattern has grown more similar to September of 1978. The similar pattern chart pattern has moved from most similar position number 1 to number 2.

The two month chart pattern analysis results are extremely weak for the Dow also, finding only 53% of similar charts with an uptrend.

This month's similar chart patterns are strong at 78% BUT its top similar chart (#2) is extremely similar to September of 1978, a nice run-up, a slide (we are here), another run-up, and the historic -- S&P dropped 14% in October; too close for comfort. Then there are the parallels to the dollar:

"Between January and October of 1978, the Dollar lost fully 25% of its value against a basket of the currencies of its major trading partners. By early 1979, due to this precipitous fall, the demand for Gold was overwhelming the amount that the IMF/Treasury dared supply, and the Gold auctions came to an end." -- The Early Gold Wars

Keep in mind, as quickly as it evolved into similarity with this pattern, it can exit just as quickly, one day's close can do it. The good news is, the 3 month chart pattern is at 92% probability of an uptrend at 5%.

This month's signal has suddenly popped to 79% probability for an uptrend of 2% in the Dow. Interestingly, it maps neatly to the signal on June 5th, 2007.

Startingly, the best fit for this month is August of 1978, which was a prelude to the October Massacre of 1978. The similarity to this time period emerged this month, and is most probably a demo of that time period's sentiment -- look at this cartoon from that time period. I will keep a watchful eye on the development of this pattern.

September chart patterns are still weak.

Random walkers may find this study insightful: Stock Market Prices Do Not Follow Random Walks: Evidence from a Simple Specification Test

Did today's big move in the Dow precast a bullish trend ahead? According to similar historical chart patterns, not within the next couple of months. Although, the third month is an entirely different story.

The third month chart pattern has significant consistency, where 84.62% of its similar chart patterns are trending up 4.40% in price, a considerable increase in the signal's strenght from last week at 72%.

For the next 2 months, the Dow's most recent charts patterns have no historically similar chart patterns with consistent up-trends -- a chaotic 53% probability of an uptrend. The 3 month chart patterns are demonstrating some strength at 72%, and finally, the 6 month charts are demonstrating significant strength at 84%. Overall, the Dow's chart patterns have improved from last time.