Technical Note: The value Line Index above has been superseded by the Advance-Decline in the next chart. To make the transition I have compressed the vertical AD plot 1966 to 1974 in order to illustrate the same Ts you see above. The projected top dates are not changed because the patterns are identical for our purposes.
A Theory of Matched Trend Time
Chapter 2 The Modern Advance-Decline Ts
The modern successor to the Transport and value Line Ts for the decade ahead are the sequence of Advance-Decline Line Ts covering the period from 1970 to the present as shown below. In this color chart we use the New York Exchange Daily Advance-Decline Line to define the cash build-up phase which defines the left side of the T. This A-D Line is plotted along the lower portion of the chart. Each T's cash build-up phase is defined as the period of declining tops in the AD Line and is represented in red ink. An enlarged chart of this history is provided in our paper study available for the asking and key data is summarized in the table that follows. (Note T#7's cash build-up actually "overlaps" the 1987 to 1990 period).
To represent the market's daily trend over this period I have selected the Daily New York Composite Index of all stocks as the representative measure of equity values since it covers the value of all the stocks represented by the AD Line beneath. The Theoryof Matched Trend Time, which forms the whole basis for T Theory, is demonstrated by linking the T's projected market rally as the green line having a time duration which is identical to the prior red cash build-up phase below.
Basically I programmed the upper plot to start from each T's center post low plotting the NY Index in green ink until the number of days elapsed matched the number of days of the prior red cash buildup phase. At this point the Theory of Matched Trend Time says the period of superior returns has ended and I turn the plot red to indicate the daily NY Index is at some risk. The plot remains red until the center of the next T. The cycle then repeats. If one grants the T's center post location is known, then Magic T Theory states the green line is the predicted period of superior returns while the red upper line is the period of high risk.
