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Thursday, April 8, 2010

Some critical remarks on the Armstrong model ( still a valuable asset)

Some critical observations on the business cycle model of Armstrong as the dates have definetly big significance but not the way thenscheme below makes one think. If you cross check it with real market points a differnt picture appears. Lets take the first high point on this picture at 1903.95 which seems to be a high in the cycle and marked as Rich Mans Panic - inddeed there was a panic before and this date of Armstrong pretty exactely marks the low of the DOW around 40 the only other time in the last century - hence the pure opposite the model seems to imply but its almost exact as the low was in OCT of 1903 followed by a steep rally.
The next instance catched it somewhat better as the low point at 1908. 25 catches almost the low point at 57 in NOV 1907 after the high around 100 in FEB 1906.
1916.85 inddeed marks an important high in the DOW after the WW1 rally on the point but the character of the swings would rather suggest a low. The important low one year later is not earmarked as the high in DEC 1919 (followed by a crash of almost 50%).
Again the high point in the next cycle rather marks a low with some tolerance as it was in AUG 1921 not at 1921.15 - the next significant point at 1925.45 is not a botom as claimed it just a point within the huge rally which let to the 1929 bubble.
The model catches the crash high quite well but not the low - hence we can give the model some credit even more than most systems ever presented but it is for itself not all the know-how the Armstrong computers spit out I assume as there are definetly cycles but the way they develope are a bit more complicated than this model tries to imply.


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