Echo Bubble Watch

Sept-Oct 2003

Here is a record (log) of my explorations of the Sornette models of stock market bubbles, as posted in 2003. After the fact review should be useful as a learning tool. As of right now in mid November, the market has not given us a crash. HOME

The NASDAQ may be seeing a classic Sornette bubble blow-off here. The model curves go infinite in mid-September or maybe late October. We expect something to give before then. Then watchout below!

Sept 28, Update. I have just completed a log-periodic power law fit to the echo bubble beginning at the bottom, Oct 9, 2002. LPPL is now evident, although in June, when I started looking for LPPL I only found it in the short segment after March. My fitting procedure sets a series of critical times and for each, solves for the remaining parameters in the LPPL formula. The critical time providing the minimum error is selected for the solution, tc = Dec 28, 2003 with a corresponding angular frequency, w = 8.67, right in the desired range of 6 to 13.

NASDAQ-Sep-26-2003.gif

NASDAQ_fe-Sep-26-2003.gif

If it hasn't already stated, it won't take much to get a good correction here, IMO.

Oct 11, Update. Addition of another few weeks data (Oct 9, 2002 to Oct 10, 2003) shows that the latest dip and pop has tightened the cycles bringing the critical data in to Dec 5. The angular frequency is unchanged at 8.68. For you fractal fans, this frequency, w is related to the cycle to cycle self-similularity ratio, L, by the formula

L = e±2*pi/w

so in the current echo bubble we have L = 0.48 (bubble) 2.06 (anti-bubble). Since we are in the bubble phase of this echo bubble, we see each cycle is about half as long as the preceding.

Oct 22, Update. Now it looks like we'll get a break. Here is my Sornette chart, based on data through Oct 17. (Chart shows NASDAQ through Oct 31.) The critical time is at Dec 12. With a downward correction the last few days shows the cycle getting very tight and not keeping up with expectations. (I'm in cash since Oct 14.)


Nov 10, Update. The cooling of the irrational exuberance the last week or two has caused the solution to slip a cycle and push the critical time out to Feb 9.