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market sell-off

The above article was written on July 13, 1995; it is now July 29th. The intervening 16 days have included the sharp (130 Dow   points) selloff of July 19th in which the "tech" stocks were particularly hard hit.It is interesting to see how TOPFINDER fared in   the face of this selloff for our examples (LSI and EMC - both tech stocks).

There are, in general, three possible outcomes of a market sell-off on TOPFINDER. Usually, the effect is to shift the top further   into the future, readjusting as it were the constant D to accommodate a pullback deeper than had been anticipated. (One may use   the analogy of a minor earthquake which has the effect of releasing some of the pent-up stresses thereby buying some additional   time before the "big one" hits). Alternatively, the trauma may be sufficiently severe to abort the "launch" entirely - in the rocket   metaphor of article #12. This is what happened with EMC. As seen in the third figure, the price pulled back exactly to "earth"

(S2) as anticipated.

Or, TOPFINDER can take the selloff in stride. This may be what is happening with LSI. As seen in the fourth figure, the current   price is quite close to the predicted top although some volume remains before burnout. To be sure, the pullback did penetrate the   TOPFINDER curve somewhat (as would have been evident if we had updated it) and some readjustment of D may have been in   order. For the present, the jury is still out but a verdict will be forthcoming shortly. In either event, it is quite often the case - as it   is here - that TOPFINDER provides remarkably accurate price projections even if the top should turn out to occur later than anticipated.

We have thus far applied the MIDAS method of technical analysis to individual stocks, although we

speculated at the outset that its applicability extended to markets in general. To the extent that all

markets are driven by the same basic psychological factors, this is perhaps not too unreasonable an idea. In the

few remaining articles of this series, we will therefore look at some new types of market data from the MIDAS

perspective. We begin here with stock market indices.