April 2004 – T Theory® Update
Short Range T Update April 23 2004
The short term trend detailed in the daily chart below turned up on Thursday from the critical 55 day MA support required to keep the new Ts advance in the bullish mode. Click on the image for a larger view.
However on Friday the rally was poor with almost twice as many issues down as up. So there is yet no indication the bounce is picking up momentum, which would be needed to confirm the bullish scenario for the new T. This is the key to developing a T Theory forecast for the next six months because the Cash Build Up period which defines the left side of the current T is about 7 months and thus the new T’s right side last for an unusually long period.
If investors place greater weight on the good earnings report a bullish T scenario would likely develop which requires the correction to hold at the critical 55 day MA as noted in the chart for recent history. On the other hand if rising interest rates and other negative factors gain the greater influence the trend will collapse, probably on the next correction.
Any failure or bullish scenario can last for some 5 months so the outcome can have a significant determination as to where the S&P is going relative to the 39-week Adaptive Channel picture. The determination should be simple given a few more days.
Adaptive Channel Update for April 16 2004
Expectations of higher interest rates have weakened the S&P trend but no conclusive outcome has been indicated as this date. Click on the images for a full sized view.
The Adaptive Channel chart continues to suggest the prior top at the upper envelope has already halted the advance from the March 2003 low. Of course I would not want to claim these computed upside projected “limits” would always prove accurate or reliable because they are only based on statistical estimates. But they do provide useful guidance while the trend is still strong and I believe generally prove valuable in money management.
Next month I will be opening a companion site titled ASIC Online, which makes greater use of this concept. It will develop investment strategy concepts as time permits. As suggested by the 39-week chart, the basic idea is that one should structure their investment portfolio’s potential outcome so that it “harmonizes” with the history of swings above or below the 39-week center moving average (MA). Since the envelope definition of these adaptive channels is based on statistical techniques it follows that any strategy is best based on the probable outcomes that might reasonably be expected from these recent five-year swings.
At the same time one must be conscious of the fact this five year history is necessarily very restricted in its view of the very long term potential outcomes, particularly when one considers historical fact that equities (using the S&P) are greatly overvalued based on the last 120 years valuations. To understand this much bigger perspective I will adopt some of the ideas and conclusions that Michael Belkin has expressed. His general approach is noted in my March 10th update of the very long 200-year Dow Industrial trends. I have made a preliminary study of his concept and believe the concept of a normal 200 month central trend that could define a much more significant adaptive envelope is a worthwhile concept to pursue for the future. I will develop its greater perspective next month.
In the meantime I would just note the adaptive envelope concept, be it restricted to swings around the 39 week MA or the 200 Month MA, makes the fundamental assumption the price trend will seek out one of three price levels as the projected point for any new change of trend. For the current case we are seeing a 2 to 3 point drift upward for the last week in the computed targets as noted in the charts.
Near term, the only three likely potential outcomes remain the recent momentum tendencies to rally into the upper envelope at S&P 1191 (less likely), a decline to the 39-week MA S&P 1064 (most likely) or a much less likely steep decline to the lower envelope at S&P 938. Ideally one wants to have probabilities assigned to the three outcomes and I am working on that aspect because it helps in setting up investment strategies that best match the adaptive channels. In the meantime the Short Range T analysis below should eventually conclude the likely outcome.
When we turn to the Short Range T chart above we have a different set of technical ambiguities however they also have a different perspective and can help determine the 39-week outcomes. The helpful aspect of the daily chart is that a new T was confirmed and historically all Short Range Ts can eventually be graded as to one of two types.
Bullish Ts support the daily market trend at or near the 55-day MA on any reactions and otherwise maintain a general rising bottoms uptrend in price. The Volume Oscillator trend is not important, although a rising bottoms pattern can give warning of a good strong short-term rally. A bullish T will push the S&P up to and hold it near the upper envelope of the 39-week chart in the months ahead.
The alternative Bear type T is identifiable by an S&P break below the 55-day MA within the right side of the new T. If such a breakdown occurs the S&P will be expected to go to the 39-week MA if it is a mild breakdown or the bottom envelope if it is severe.
The outcome is likely to be determined over the next week or two. The markets daily relationship to the 55-day MA trend is the key and an exponential moving average of 55 days is easily obtained on the web. Terry Laundry
Adaptive Channel Update for April 9 2004
Last week I took a look at the interaction of the newly formed Short Range T against the more significant Adaptive Channel Tops expected at the upper red dashed envelope. This week I continue to look at the two concepts because the market is at an interesting juncture. Click on the images for a larger view.
The interesting aspect is that the Short Range T is trying to push a rather long advance of more than 6 months based on its arbitrary time span, whereas conditions make this unlikely. The market has risen to an over-valued condition once again, prospects for interest rate rises exist, and optimism was recently at levels that have marked prior peaks.
Thus one might expect my adaptive channel concept to win its argument that the upper red dashed envelope will halt the strength that has lasted for 12 months. It won that argument six weeks ago and it may repeat the “Tops” if the initial rally of the new Short Range T can persist a bit longer. To monitor this outcome we need to watch the ongoing details in the Short Range T chart.
The critical element is to see if the 55 day MA can hold the first reaction, then set the base needed to launch a higher high. Any higher high would be expected to reach the upper red envelope now at S&P 1189+. But it need not occur since the upper envelope has already been reached, potentially completing the 12-month move about 6 weeks ago. More in a week. Terry Laundry
Adaptive Channel Comments for April 2 2004
On March 26 Gary posted the following (partial) comment:
“I found your website to be very useful. I have been working and reading on the market cyclical stuffs for about 1 year. Since January, after reading a book by J.M. Hurst, I have been thinking of plotting a cyclical envelope in Metastock using Hurst’s ideas. I have been trying, searching but nothing satisfied me. Until I surf your website just now, I found your Adaptive Channels to be most useful thing that I have found in these months.”
With Gary’s comment in mind, I am using this posting to cover a number of updates, comments and introduction of new projects that will be coming later during April. The chart that below details the current status of the 39-week Adaptive Channels. The Short Range T chart that follows updates the formation of a new Short Range T. Click on the images for the fuller more detailed views.
The main point of this posting is, from a risk reward standpoint, the 39 week adaptive channel does not show a sufficient decline from the prior January 2004 peak towards a normal 39 week S&P 500 MA target level of 1059, to justify any new buying. On the other hand, an investor who owns equities can take historical comfort from the fact that a rising 39 week MA is generally positive, and normal bull market risk is only down to the 39 Week MA, as noted in the chart.
This channel concept has historical significance in that the normal pattern of S&P price Tops and Bottoms provides one with a way to compute the widely quoted and very important potential “risk to reward” ratio for a wide variety of circumstances over the last four years. For example the current position shows the market as represented by the S&P 500 benchmark about half way down from the normal bull market Tops envelope towards the normal bull market Bottoms level.
This puts the nominal up-side potential to the red dashed line which targets bull market tops as roughly comparable in percentage terms to the downside potential relative to a full bullish correction to what is noted as normal lows (Bottoms).
Gary probably noted that this key calculation is presented in convenient graphic terms making the possibilities fairly obvious. This is a critical first step before entering any new purchase. The current situation is ambiguous at best since a very highly attractive situation does not exist, even though an advance to the upper red dashed line is entirely possible.
My enthusiasm for this Adaptive Channel presentation is all likely market scenarios are easily seen as reasonably limited to the three S&P levels noted in the chart and tabulated at the top. This is of great help with the Short Range T analysis that follows below since the small Ts only trigger a trend, which practically speaking, is ultimately headed to one of the three levels already pre-calculated in the 39-week chart. Since the price levels are known at the outset, % gains, potential losses etc can be gauged.
The Short Range T picture below has the primary role of generating the new trends that should fit within the adaptive channels. It is important not to believe the time projection of a new T if it doesn’t look like the time projection will fit the channel pre-computed price projection. So for example, the new Short Range T starting point was suggested by the rising bottoms pattern but the 7-month Cash Build Up period is unlikely to produce a matching 7-month price advance since the market is still somewhat overbought according to the 39-week perspective.
Under these conditions it is likely the initial rally of the new T will drive the S&P to the upper target, then fail as the T collapses. When this T collapses the likely downside target is the 39-week MA, etc. The status of the short-term trend, and prospects for reaching the upper channel objective plus confirmation any collapsing, comes quite simply from the daily S&P relationship to its 55-Day MA. If the current overbought condition produces a pullback before reaching the 39-week upper envelope, the uptrend is still deemed in tact if the S&P can hold the 55-Day MA on reactions, which should start soon.
Eventually, an uptrend should reach the upside target for the 39-week channel, and if so, a top is indicated at, or slightly above, the target level being computed which changes only slightly over time.
If the T does collapse at some point the confirmation that this has occurred will come when the S&P falls below the 55 –Day MA as noted in the Short Term Chart. This number can change more rapidly but the real objective is always one of the three 39-Week numbers, so don’t become confused.
Next week I will begin presentation of the 200-month MA that for the big (200 year) picture is quite remarkable, based on my preliminary findings. …Terry Laundry
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I claim no credit for the material found under T Theory® on this blog. All of this material is the creation of Terry Laundry and was downloaded from Terry’s free blog site (TypePad). I have created a mirror of Terry’s original material and now there is a second site containing Terry’s T Theory®. One or both of these websites hopefully will survive through time as Terry’s material is too important to be lost to the ravages of time. This site is simply a memorial to his lifetime work.
The page content re-blogged here is exactly as Terry created on his original webpages (saved on my computer with ScrapBook)). Nothing has been left out from the period Dec 2003 to June 2011. From Terry’s site, I made a lot of formatting changes, creating a more easily readable webpage appearance. The PDF chart duplicates of the JPEGs have been omitted for ease and speed of recreating Terry’s pages. References to PDF charts should be ignored (but no chart was left out).
After June 2011, Terry created a paid subscription website. None of that material is found here.
There were many many, many hours spent on this project; downloading Terry’s individual charts & audio files, followed by the uploading of Terry’s charts and audio to my WordPress blog library, after which I had to insert the uploaded material into my new T Theory® webpages (hopefully in the correct places). This was a dull and arduous project and I hope you enjoy it. I don’t believe there remains any more of Terry’s material in free domain, so my T Theory® project is probably finished. If I’ve missed something, you can leave me a comment.
If you find an uploaded reference error (chart or audio in the wrong place), please note the month and year of the webpage, plus the exact name of the referenced error file. Include any other info that will help me locate the problem file and where it occurs on the webpage. Leave a comment for me with the info and I’ll fix it.
Terry’s material is very long and will take many weeks for you to finish. Don’t hurry, it’s not a marathon and you will absorb more if you go through it at a reasonable rate. This is especially true for those who don’t invest in the T Theory® reference encyclopedia. The encyclopedia is a written reference for T Theory® and includes everything of importance for Terry’s T Theory®. Without the reference encyclopedia you must depend on your memory and Terry’s method carries some rules that you could easily violate. The encyclopedia also includes new information never seen on his website.
You are welcome to save any or all of my blog material to your computer. You also have my permission to re-blog my information, but you must (1) credit me and my blog in an obvious manner and (2) don’t change my material.
FYI – I find the best way to save a webpage is using “ScrapBook” (it’s an add-on for the FireFox browser). ScrapBook saves a webpage to your computer EXACTLY as it appears on the day you saved it. You can’t tell the difference between the internet webpage and your ScrapBook saved webpage. The saved pages are not pictures. Instead the pages consist of HTML and page functionality remains identical on your computer. There is also a second method for using ScrapBook, where you can save all of the webpages down to a defined link depth. This optional method means all links will function on your computer to the link depth specified (meaning you can click on links on your saved webpages and tunnel down into pages within pages). Saving the normal way will only save the top webpage but the links that exist could continue to function by taking you to the website on the internet instead of on your computer. But sometimes the linked website doesn’t exist anymore. I’ve had this happen on some very good webpages with unique information (they just disappear into the internet void). That’s a bummer when you lost some really good info and thus rose my need for ScrapBook. You can also filter the pages saved using the optional ScrapBook method, which can exclude all pages not coming directly from the specified website (filtering is recommended using this method otherwise you wind up with a LOT of useless stuff).
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