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Erman,+W.T.+ (2002) Log+Spirals+in+the+Stock+Market
Erman,+W.T.+ (2002) Log+Spirals+in+the+Stock+Market
Erman,+W.T.+ (2002) Log+Spirals+in+the+Stock+Market
Erman
MARKET TIMING
98
15
14
1000
700
362 Days
10
87
12
90
500
300
Stock Market
90
8 13
6 83 87 200
11
DATE LIST
1 S&P, October 4, 1974 6A DJIA, April 27, 1981 11 October 20, 1987
1A DJIA, December 22, 1974 7 S&P, August 9, 1982 12 July 16, 1990
2 September 22, 1976 7A DJIA, August 12, 1982 13 October 10, 1990
3 March 1, 1978 8 October 11, 1983 14 July 20, 1998
4 February 13, 1980 8A November 30, 1983 15 DJIA, September 1, 1998
5 March 27, 1980 9 July 25, 1984 15A S&P, October 8, 1998
6 S&P, November 26, 1980 10 August 25, 1987
FIGURE 2: This list represents the dates for corresponding numbered chart points in Figure 1. The dotted points denote when the DJIA and S&P reverse
on different days; both dates are used in this situation. This is referred to a compound pivot.
ERMANOMETRY PRINCIPLES
The day count and determination of turning points for the October 8. Each of these low days represents the
market moves illustrated in this article are based on certain lowest intraday price subsequent to the July 20th top.
principles of Ermanometry. Following is a brief explanation Therefore, they are identified as two components of a
of the pertinent principles: compound pivot. The components are interchange-
able and may be mixed and matched time may be
Pivot: The day when a specific market move, either up measured from a previous pivot to all components of
or down, reaches its extreme intraday high or low a compound pivot. It is quite common to measure from
price. Closing prices are not considered. a DJIA pivot to an S&P pivot, and vice versa. The
Measuring time: Time is measured in increments as properties of the DJIA and S&P pivots are shared by
small as 15 minutes. The largest increment is a single a third pivot, termed the balance point. A balance point
trading day. Time is never measured in weeks or is that day precisely in between the two index pivots.
months. Ermanometry does not count days when the Therefore, the balance point for the September 1st
markets do not trade. and October 8th index pivots would be 13 days for-
Compound pivot: The S&P and DJIA are considered ward from the DJIA low and 13 days back from the S&P
one market and are always analyzed in concert. A low.
compound pivot occurs when the two indices record Ermanometry allows for a maximum error factor of two
their extreme prices on different days. Currently, both days. This margin holds regardless of the length of
made their high extremes on July 20, but their lows moves being analyzed, including moves of 20,000
were made 26 trading days apart: September 1, and days or more.
W.T.E.
refer to as a compound pivot: S&P, October 4, 1974; DJIA, DE and EF of the rectangular spiral. Using DE and EF allows for
December 9, 1974. Both indices made important lows on both three segments counterclockwise. (See Figure 5.)
days, but the DJIA made a lower low on December 9 and the S&P
held above its October 4th low. Since the S&P pivot came first, Step 3: The values for the remaining segments of the rectangu-
it is the logical starting point for identifying a macro log spiral. lar spiral may be calculated using the constant growth/decay
The first move of sufficient importance considered in ratios derived in step 1.
identifying a macro log spiral is the advance from the S&P
1974 low to the 1976 top. On Figure 1, the heavy line (497)(1.37293) = 682.35
connecting points 1 and 2 shows this 497-day move. The (682)(1.37293) = 936.81, etc.
second move is the decline from 1976 to 1978, points 2 and
3, 362 days. The third move is from the 1974 low to the 1978 The following table shows the values for the rectangular sprial
low, points 1 and 3, 859 days. Ermanometry considers the segments:
time distance between any two important pivots as a separate
and distinct move, even if it encompasses other important Segments
AB = 139.88
moves. Though the 859 days from low to low (points 1 and 3)
BC = 192.05
have already been considered a 497-day advance and a 362-
CD = 263.67
day decline, the 859 days are treated as a third move. DE = 362.00 (seed segment)
Only two moves, which will be referred to as seed seg- EF = 497.00 (seed segment)
ments when referring to log and rectangular spirals, can be FG = 682.35
used to initially identify growth patterns because a constant GH = 936.81
ratio of growth must be established. The 497- and 362-day HI = 1,286.17
segments will be used first: IJ = 1,765.83
B
I E A C G
X
Z
D
F
497 CD 263.67
B
DE 362
I E A C G EF 497
X
362 1122.67 H
D 14
98
Standard & Poor s Composite 1000
98
(monthly)
15
700
12 500
H 10
90
87
300
90
FIGURE 5: SEED SEGMENTS. The seed segment values are placed on the 8 13
segments DE and EF of the rectangular spiral. 6 83 87 200
11
Moving ahead, Figure 7 shows how the two seed seg- FIGURE 6: PROJECTING THE 1982 LOW. Points 1, 2, and 3 are called seed points.
ments clockwise, 180 degrees, add up to the entire 10-year All seed points are valid points from which to project forward, with values derived
move, 1974-84. While Figure 6 showed how three perpen- from the spirals. When a projected point does in fact become an important pivot, that
dicular lines straightened themselves out to become an new pivot is considered part of the spiral family and becomes a valid point from
which to project forward.
important move, Figure 7 shows how four perpendicular
lines, one complete revolution of the spiral, equate an
important 10-year move. ance of two days.
Another technique to project turning points is to use the What about the crash low in 1987? Figure 11 shows how
Pythagorean theorem. Figure 8 shows an example of using the the four spiral segments connect the 1982 low with the crash
axis segments for projections. The Pythagorean theorem can low of 1987. Note that segments CD, DE, EF connected the
be used to calculate the value of each axis segment. Because of 1978 low to the 1982 low. (Refer to Figure 6.) The addition
the reversing inside-out character of the structure and identical of one more segment counterclockwise, BC, by 90 degrees,
growth ratio, axis segments are additional tools for projections. and the total added to the 1982 low completes the entire move
The two axis segments summed in Figure 8 represent the from 1974 to 1987, low to low.
advance from the 1978 low to the S&P peak in 1980, point 6. If we extend our range and use the larger spiral segments,
The next technique is to use a single axis segment for we can see that in Figure 12, we can project more distant
projections. Examining Figure 9 reveals that the 1,159-day pivots. The projection missed the actual pivot day by 1.8
time distance value for FH exactly equals the days from the days. However, as in all growth pattern analysis, multiple
1976 peak (both indices) to point 6A, the 1981 DJIA peak. spirals, from many different time frames, were used to
Points designated with an A do not appear separately on the confirm this projection.
chart, and therefore, the 1,159-day line connects points 2 and The peak in the market that occurred in the summer of 1998
6 instead of points 2 and 6A. is examined in Figure 13. The first three spiral segments
Figure 10 is the sum of the six axis segments, and the totaled the move illustrated in Figure 6. The next two seg-
results constitute the entire advance from 1974 to 1987. The ments, FG and GH, total 1,619 days, the move from 1978 to
error in this example is 1.32 days, within the allowed toler- 1984. In Figure 6, this move is shown emanating from the
DE 362
EF 497 XE 401.73
FG 682.35 XD 292.6
GH 936.81 694
2478.16 H H
14 14
98 98
Standard & Poor s Composite 1000 Standard & Poor s Composite
(monthly)
98 FIGURE 8: AXIS SEGMENTS (monthly)
98 1000
15 15
700 FOR PROJECTIONS. The 700
Pythagorean theorem can be
12 500 500
10
90 used to calculate the value of 10 12
90
87 87
each axis segment very easily.
300 300
90 Because of the reversing in- 90
8 13
83 87 200
side-out character of the struc- 8 13
6 6 83 87 200
4 80
11 ture and identical growth ratio, 11
2 150 2 4 80 150
76 80 84 axis segments are additional 76 80 84
9 9
100 tools for projections. The two 100
80 82 82
7 axis segments summed in Fig- 80
78 5 78 5 7
3 2478 Days 70
ure 8 represent the advance 3 70
1974 1974 694 Days
1 from the 1978 low to the S&P 1
75 80 85 90 95 00 75 80 85 90 95 00
peak in 1980, point 6.
FIGURE 9: SINGLE-AXIS
PROJECTING THE DJIA 1981 PEAK PROJECTING THE 1987 PEAK
SEGMENT. The 1,159-day
F time distance value for FH
F
exactly equals the days from
the 1976 peak (both indices)
B to point 6A, the 1981 DJIA
B
peak. Points designated with
I E A C G an A do not appear separately I E A C G
X X
on the chart, and therefore,
the 1,159-day line connects
D points 2 and 6, instead of 2 D
and 6A.
XC 213
XD 292.6
FH 1159 XE 401.73
XF 551.53
XH 1039.6
H H
3255.68
14 14
98 98
Standard & Poor s Composite 1000 Standard & Poor s Composite 1000
98 98
(monthly) (monthly)
15 15
700 700
12 500 12 500
10 10
90 90
87 87
3257 Days
300 300
1159 Days 90 90
8 13 8 13
6 83 87 200 83 87 200
6
11 11
2 4 80 150 FIGURE 10: SIX AXIS SEG- 2 4 80 150
80 84 80 84
76 9 MENTS. The six axis segments 76 9
B
I E A C G Z
X
F
D
B
I E A C G
BC 192.05 X
CD 263.67
DE 362
EF 497 D
1314.72 H
14 GH 936.81
98 HI 1286.17
Standard & Poor s Composite 1000
IJ 1765.83
98 H
(monthly)
15 3988.8
700
500 14
10 12 98
90
87 Standard & Poor s Composite
98 1000
(monthly)
300 15
90 700
8 13
6 83 87 200
12 500
80 11 10
2 4 150 3987 Days 87
90
80 84
76 9 300
82
1312 - 15 Days 100 90
80 8 13
78 5 7
6 83 87 200
3 70 11
1974 2 4 80 150
1 80 84
76 9
75 80 85 90 95 00
82 100
80
5 7
FIGURE 11: FOUR SPIRAL SEGMENTS. The 1982 and 1987 lows can 78
3 70
be connected via these four spiral segments. Note that segments CD, 1974
1
DE, and EF connected the 1978 low to the 1982 low. The addition of one 75 80 85 90 95 00
more segment counter clockwise BC, 90 degrees and the total
added to the 1982 low completes the entire move from 1974 to 1987, FIGURE 12: LARGER (SPIRAL) SEGMENTS PROJECT 1990 PEAK.
low to low. The projection missed the actual pivot day by 1.8 days. However, as
in all growth pattern analysis, multiple spirals, from many different time
frames, were used to confirm this projection.
1974 low because the seed segments were included. The segment is used. We can consider that these parallel vectors
addition of the successive spiral segment, HI, brings the totals actually represent the circumference of a circle that has
to 4,028, which is the exact number of days from August 12, been splintered into five straight lines, and we proceed to
1982, to July 20, 1998. calculate the diameter of such a circle by dividing the
circumference by pi:
In Figure 14, note that the time distance from the 1970 low If once again these segments are considered segments of the
to the S&P low in 1974 is 1,102 days, and 1,147 days to the circumference of a circle, and we calculate the diameter:
DJIA low in 1974. The parallel vectors on the rectangular
spiral are added together, which means that every fourth 3463.31/3.14159 = 1,102.4, which rounds to 1,102
IJ 1765.83
B EF 497
Z AB 139.8
I E A C G CD 263.67
X GH 936.81
F 3603.11
D
B
I E A C G
CD 263.67 X
DE 362
EF 497
FG 682.35 D
GH 936.81
HI 1286.17 H
1314.72 3603.11
= 1146.9 round to 1147
3.14159
14
3603.11
H
98
-AB 139.8
Standard & Poor s Composite 1000 3463.3
98
(monthly)
15 3463.3
= 1102.4 round to 1102
700 3.14159
12 500
10
90
87
300
90
8 13
6 83 87 200
11
2 4 80 150
80 84
76 9
4028 - 4031 Days 100
80 82
78 5 7
3 70
1974
1
75 80 85 90 95 00
05-26-70 S&P
FIGURE 13: SUMMER 1998 PEAK. The first three spiral segments totaled the 10-04-74
move illustrated in Figure 6. The next two segments, FG and GH, totaled 1,619 1102 days DJIA
days, the move from 1978 to 1984. In Figure 6, this move is shown emanating from 12-09-74
the 1974 low because the seed segments were included. The addition of the 1147 days
successive spiral segment, HI, brings the totals to 4,028, which is the exact number
of days from August 12, 1982, to July 20, 1998. FIGURE 14: DIFFERENT GEOMETRIC SHAPES. The time distance from the 1970
low to the S&P low in 1974 is 1,102 days, and 1,147 days to the DJIA low in 1974.
The 1,102 represents the time distance from the 1970 low to therefore, the time distance from the 1974 low to the 1978 low.
the 1974 S&P low.
The diameters representing the moves from the 1970 low Step 1: Calculate the ratio between 859 and 497:
to both the 1974 S&P and DJIA pivots, at the 1974 low,
resulted in circles seen in the spiral segments. Market time 859/497= 1.72837
reincarnates itself in related geometrical shapes. The
analyst would consider the appearance of permutations of The inverse: 1/1.72837 = 0.57858
two previous market moves in spirals anchored by the 1978
low as confirmation of an important low. Step 2: Place the seed segment values, 497 and 859, on
segments EF and FG of the rectangular spiral.
A NEW CONFIRMING SPIRAL Step 3: The value for the remaining segments of the rectan-
The two seed segments used thus far are 497 and 362. These
gular spiral may be calculated using the constant growth/
segments are the advance from 1974 to 1976, and the decline
decay ratios derived in step 1.
from 1976 to 1978. A second set of seed segments is now used
to calculate a new spiral. The first seed segment is the advance
Seed segment
of 497 days, used previously. The second seed segment is 859,
AB = 55.69
the sum of the 497-day advance and the 362-day decline, and
F 859 F
497 B B
I E A C G I E A C G
X X
D D
CD 166.37
DE 287.55
1484.67 EF 497
FG 859
EF 497 = 859 FG H GH 1484.67 H
FG 859 1484.67 GH 3294.6 round to 3295
14 14
98 98
Standard & Poor s Composite 1000 Standard & Poor s Composite 1000
98 98
(monthly) (monthly)
15 15
700 700
12 500 12 500
10 10
90 90
87 87
1484.87 Days 300 300
90 90
8 13 8 13
6 83 87 200 6 83 87 200
11 11
2 4 80 150 2 4 80 150
80 84 80 84
76 9 76 9 3296 Days
82 100 82 100
80 80
78 5 7 78 5 7
3 70 3 70
1974 1974
1 1
75 80 85 90 95 00 75 80 85 90 95 00
FIGURE 15: 1982 LOW CONFIRMATION. A simple three-term continuous propor- FIGURE 16: RECONFIRMING THE 1987 CRASH LOW. Figure 10 has already
tion, A is to B as B is to C, using the constant ratio of growth and the two seed projected the October 20, 1987, low. The five spiral segments in Figure 15 repeat
segments to confirm the 1982 low previously projected in Figure 6. this projection with a total of 3,295 days. The actual number of days from the 1974
low to the 1987 low is 3,296 days.
CD = 166.37 1976 peak to the 1982 low. This confirms the projection
DE = 287.55 already made for the 1982 low by using three segments of the
EF = 497 (seed segment) 497362 spiral, illustrated in Figure 6. A simple three-term
FG = 859 (seed segment)
continuous proportion of A is to B as B is to C uses the
GH = 1.484.67
HI = 2.566.35
constant ratio of growth and the two seed segments:
IJ = 4.435.6
Segment Segment
The constant ratio of growth, 1.72837, is 26% larger than the EF 497 859 FG
1.37293 for the spirals already analyzed. This rapid growth FG 859 1,484.67 GH
causes the spiral to expand and decrease so quickly that it
So 497 is to 859 as 859 is to 1,484.67; 1,487.67 (segment GH)
cannot be drawn to scale without becoming distorted. The
is the time distance from point 2, the 1976 peak and terminus
decreasing spiral becomes so small that it is unreadable.
of seed segment 497, to point 7, the August 9, 1982, low.
Therefore, the graphic portrayal of the 1.37293 growth ratio
Another interesting example uses five spiral segments to
will also be used to illustrate this new set of spirals. Remem-
confirm the 1987 crash low (Figure 16). Figure 11 has already
ber, while it is not to scale, the principles remain.
projected the October 20, 1987, low. The five spiral segments
in Figure 16 repeat this projection with a total 3,295 days. The
EXAMPLES
actual number of days from the 1974 low to the 1987 low is
Now, lets look at examples using this new set of calculations.
Figure 15 shows how a single spiral segment, generated 3,296 days.
immediately following the two seed segments, connects the And in more recent activity, Figure 17 shows that from the
D D
AB 55.69
BC 96.26
CD 166.37 AB 55.69
DE 287.55 BC 96.26
EF 497 CD 166.37
FG 859 DE 287.55
GH 1484.67 EF 497
HI 2566.25 H H
6012.5 1102.85
14
98
Standard & Poor s Composite 1000
98
(monthly)
15
700
FIGURE 18: CONFIRMATION
12 500
10
90 TOOL. We showed in Figure 14
6012.5 Days 87
the 1,102-day time distance from
300
90 the 1970 low to the S&P 1974. In
8 13
83 87 200 this example, the 1,102 days ap-
6
4 80
11 pear as five contiguous spiral seg-
2 150
76 80 84
9
ments. The appearance of the
05-26-70 S&P
82 100 1970-74 1,102-day move in a spi-
80 10-04-74
78 5 7 ral created by subsequent moves 1102 days DJIA
3 70
(1974-76-78) is a confirmation that 12-09-74
1974 1147 days
1
75 80 85 90 95 00
the 1978-low day could be a very
major pivot day.
S&P 1974 low to July 20, 1998, is 6,012 days, which is the PROJECTING THE 10/05/92 PIVOT
total of the eight spiral segments in Figure 16. This peak was
also projected in Figure 13, illustrating the 4,028-day move F
3300
OTHER TECHNIQUES
Right triangles can also be used 3200
to identify important pivot points;
Figure 19 illustrates this tech-
nique. Figure 8 introduced the
3100
use of axis segments, while Fig- 10-05-92
ure 14 introduced the concept of 1992 April July Oct. Jan.
Figure 22) is placed on segment EF, and segments FG, EX, 1974
1
75 80 85 90 95 00
and XG are calculated with the square root of the same
constant growth ratio used throughout the 497859 seed FIGURE 23: RECTANGULAR SEGMENTS AND AXES SEGMENTS
CHANGE PLACES. Since all segments of the diagram have the same
segment example, the result is a right triangle, EFG. The
growth ratio, the ratios can be interchanged without changing the shape
perimeter of this triangle equals the perimeters of the two of the spiral. Figure 23 is an example of switching the segments from
opposing triangles in Figure 22. Earlier, I stated that the axes Figure 22. Now the sum of the perimeter of triangle EFG equals 3,256.
segments and spiral segments, by virtue of a common growth
ratio, could be interchanged without changing the shape of
the spiral. This principle is illustrated in Figure 23, where the Robert Prechter, Jim Tillman, and Walter Bressert for pio-
axes segments EG and FH from Figure 22 are used as spiral neering work in making the investment community aware of
segments and the spiral segments, EF and GH from Figure 22, the importance of timing analysis. This article is dedicated to
become axes segments EX and XG. This type of exercise may Jeffrey Horovitz, the former director of The Foundation for
be redundant, but I have presented it to illustrate different the Study of Cycles, whose support has never wavered.
approaches to analyzing spiral segments. Charts were supplied by Topline Investment Graphics.