Determining bottom price-levels after a speculative peak

Abstract

During a stock market peak the price of a given stock ($i$) jumps from an initial level $p_1(i)$ to a peak level $p_2(i)$ before falling back to a bottom level $p_3(i)$. The ratios $A(i)=p_2(i)/p_1(i)$ and $B(i)=p_3(i)/p_1(i)$ are referred to as the peak- and bottom-amplitude respectively. The paper shows that for a sample of stocks there is a linear relationship between $A(i)$ and $B(i)$ of the form: $B=0.4A+b$. In words, this means that the higher the price of a stock climbs during a bull market the better it resists during the subsequent bear market. That rule, which we call the resilience pattern, also applies to other speculative markets. It provides a useful guiding line for Monte Carlo simulations.

6 pages 5 figures To appear in European Physical Journal B

Cited by in corpus (1)

• Testing the Stability of the 2000-2003 US Stock Market "Antibubble"