From: John Conover <john@email.johncon.com>
Subject: Re: forwarded message from John Conover
Date: Tue, 29 Oct 1996 03:09:36 -0800
The saga continues. (There are a lot of keyboards and plot programs
being hammered tonight-when someone comes out with a forecast like the
one mentioned previously, everyone wonders if it is a PR move on the
part of the forecaster, or is there really something to it.) The
chaotic phenomena mentioned previously, apparently, is not a
deterministic mechanism. (A deterministic mechanism is like F-MA, or
E=MC^2, or f(x)=sin(x)/x, or the like. Non-deterministic is like the
number of sunspots over time, or the weather-both of which have been
verified as being non-linear dynamical systems, ie., chaotic. It is
tricky since the formula x(t)=c/(1+e^(-(at+b))) can generate what
appears to be noise-it is the way the random number generator in your
computer works-which, although the correlation is virtually zero, is,
none the less, deterministic.) The way you verify this is by
plotting, for all time, the value at the previous time vs. the value
at the current time for the DJIA. If the result has a pattern, it is
deterministic. If not, it is not. (Tricky, huh? Actually, I didn't
suggest that, [4] did.) The program used was tsdeterministic.c, (from
the usual places.)
John
[4] "Chaos and Fractals: New Frontiers of Science," Heinz-Otto Peitgen
and Hartmut Jurgens and Dietmar Saupe, Springer-Verlag, New York, New
York, 1992.
John Conover writes:
> And, in case you are still curious, one can say that the stock market
> indices are beyond fractal, (which is the simplest kind of analysis,)
> and say it is a non-linear dynamical system, or in the lay vernacular,
> a chaotic system. If you do a chaotic analysis[1], and get the
> Lyapunov exponent that describes the horizon of predictability of the
> indices, it provides yet a 4th method that is in agreement. This is
> the method that I used in February to forecast the June correction. It
> too says that a correction is likely, (but not guaranteed,) in
> October/November.
>
> And, in case you are further interested, there is another mean
> reverting phenomena every 2/3 of a year, but it is milder than the 5.5
> year scenario. And, additionally, at 4.2 years, the market seems to
> replicate itself, ie., if it is good now, it will be good in 4.2
> years. Likewise for bear markets. At least on the average of a century
> of daily returns of the DJIA. Like I say, no one knows why-but there
> is substantial evidence that it is a chaotic phenomena. But no one has
> been able to model it, nor exploit it successfully. But a lot of math
> folks are being conservative, and running from it, (ie., take the
> money and run.)
>
> FWIW ...
>
> John
>
--
John Conover, john@email.johncon.com, http://www.johncon.com/