World stock market: more sizeable trend reversal likely in February/March 2010

TL;DR

This paper applies a specialized methodology involving log-periodic self-similarity and scaling to analyze the 2009 global stock markets, predicting a significant correction around late 2009 followed by a possible trend reversal in early 2010.

Contribution

It introduces a novel application of log-periodic analysis to forecast trend reversals in global stock markets during 2009-2010.

Findings

Identified September 2009 as a critical point for the current bull market.

Predicted a significant correction of 4-5% worldwide in late September 2009.

Forecasted a potential trend reversal in February/March 2010.

Abstract

Based on our "finance-prediction-oriented" methodology which involves such elements as log-periodic self-similarity, the universal preferred scaling factor lambda=2, and allows a phenomenon of the "super-bubble" we analyze the 2009 world stock market (here represented by the SP500, Hang Seng and WIG) development. We identify elements that indicate the third decade of September 2009 as a time limit for the present bull market phase which is thus to be followed by a significant correction. In this context we also interpret the Chinese stock market index SSE. The third decade of September 2009 was accompanied with a stock market correction typically within the range of 4-5% worldwide. Taking into account the market patterns that followed the time of delivering the previous scenario we present an updated scenario whose critical time corresponds to October 28, 2009. Assuming quite evident (as of November 12, 2009) termination of the correction due to the above critical time we extend - consistently with our methodology - the stock market forecasting scenario. The corresponding expected SP500 future trend is shown in Fig. 5 and it supports a potential average continuation of increases to as far into the future as the turn of February/March 2010. We also indicate the log-periodic patterns on the gold market and they point to the end of November 2009 as the time when the trend reversal - likely local however - is expected to begin.