Stocks & Commodities V17:2 (68-70): Log Spirals In The Stock Market by William T.

Erman
MARKET TIMING

Log Spirals Standard & Poor s Composite

(monthly)
98

98
15
14

1000

700

In The 497 Days

362 Days
10
87
12
90
500

300

Stock Market
90
8 13
6 83 87 200
11

TOPLINE INVESTMENT GRAPHICS

2 4 80 150
80 84
76 9
82 100
80
78 5 7
3 70
859 Days
1974
1
The basic mathematical characteristic of the log spiral is that 75 80 85 90 95 00
even while increasing or decreasing in size, the log spiral FIGURE 1: SPIRAL GROWTH PATTERNS. Points 1, 2, and 3 are connected,
remains constant. This is also true for rectangular spirals, forming a triangle. These points influence the growth pattern of many subsequent
the parameters of which are determined by their related log major and minor moves in the market. The dots represent those moves examined
spirals. Many major market moves share the properties and in this article.
predetermined progression of these spirals, indicating the
close correlation between multiple manifestations of the
ordered form of nature and the architecture of markets of thought regarding order in the markets and some properties
themselves. of log spirals. Technical analysis has made amazing progress
since the advent of computers, but this progress has not
by William T. Erman quieted the debate between random walk proponents and
advocates of mathematically ordered markets. Random walk
hree important turning points supporters cite the millions of subjective, individual deci-
between 1974 and 1978 have sions and unpredictable fundamental events as sufficient
influenced the growth pattern reasons for the impossibility of ordered markets. The oppos-
of many subsequent major and ing philosophical argument in support of orderly markets is

T minor market moves, up to and

including the July 20, 1998,
peak and the September and
October 1998 lows for the Dow
Jones Industrial Average (DJIA)
based on the following:

Market moves are the result of the psychological factors

and the Standard & Poors 500,
respectively. Heres how the
triangle in Figure 1, which connects the 1974 low for the S&P
500 index with the 1976 peak and 1978 low, have influenced
these subsequent market moves. The triangle seen here
connects points 1, 2, and 3 from Figure 2. The points in Figure
1 and 2 are those moves analyzed in this article.
THE CASE FOR ORDER
Before proceeding to the examples, let us review two schools
translated into market-moving decisions by the aggre-
gate of participants. The participants are human beings.
Humans are indisputably a part of nature.
As a product of humankind, markets are as inherently
natural as thousands of geometrically perfect honey-
combed beehives produced by billions of bees.
From the atom, to living organisms at every level, to the
farthest extent of the cosmos, nature exhibits the ability
to create order out of an infinite number of seemingly
chaotic inputs. Order endures, unscathed by a perpetual
barrage of potentially disruptive influences.

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.

Copyright (c) Technical Analysis Inc.

Stocks & Commodities V17:2 (68-70): Log Spirals In The Stock Market by William T. Erman

Our work provides the math-

ematical basis and evidence (see
sidebar, Ermanometry Prin-
ciples) that the markets are
merely a microcosm of the
larger natural universe in which
they exist. As children of na-
ture, markets digest and con-
vert their myriad inputs into
orderly progressive patterns of
growth, both in time and price.
One of the best-known ex-
amples of orderly progression
in nature is the nautilus mol-
lusk; a half-section view of its
shell can be seen in Figure 3.
As its growth forces the shell
to increase in size, the essen-
tial shape of the shell never
changes. The radius increases
proportionately as the shell
grows longer. Successive in-
crements of growth are united
by a constant, common ratio of
expansion.
Figure 4 approximates the
spiral growth curve of the nauti-
lus. Two perpendicular lines,
similar to polar axes, have been
drawn through the center of the
spiral at point X. As the spiral
curves around point X, it crosses
the axes at a series of points
labeled A through J. These points
have been connected with a se-
ries of straight lines. Each line is
perpendicular to the preceding
and successive lines in the se-
ries. Adjoining pairs of these
lines are the legs of successively
larger right triangles, with seg-
ments of the axes forming the
hypotenuse of each triangle. In
Figure 4, the triangle EFG has
legs EF and FG, and axis seg-
ment EG is the hypotenuse.
Also in Figure 4, the line
series A-J is a rectangular spi-
ral. Extension of any line in the
series A-J, past the point at
which it meets an adjacent line
in the series to the point at which
it intersects another line in the
BARBARA BRUCH

series, creates a rectangle. For

example, if line GF is extended
to intersect line IJ at point Z,

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Stocks & Commodities V17:2 (68-70): Log Spirals In The Stock Market by William T. Erman

then points Z, I, H, and G are the IDENTIFYING THE SPIRALS

four corners of a rectangle. The starting point for uncovering
The axes segments have the spiral growth patterns is at major
same constant growth ratio as the market pivots. Major, of course,
spirals. Therefore, the diagram is a relative term, and its quan-
could be turned inside out using tification depends upon the time
the axes segments as the rectan- frame being analyzed. Analysis
gular spiral. The values for the of short-term patterns 15-
previous rectangular spiral seg- minute bars might require only
ments would then become axes that the search start at the begin-
segments. The shape of the log ning of the current minor trend.
spiral would remain constant. For macroanalysis of long-term
trends, it is necessary to begin as
MARKET TIME far back as available data per-
IS SPHERICAL mits. The examples herein will
All markets exhibit orderly cover the current long-term pat-
growth patterns in both time and terns, and I will use 1974 as a
price. Ermanometry considers starting point.
time to be the dominant influence After the Great Depression
on market movements, and the low in 1932, both the DJIA and
examples herein will concentrate FIGURE 3: NAUTILUS SHELL. Here is a half-section view of a S&P reached their then-histori-
on time. There are always mul- nautilus shell. Successive increments of growth are united by a cal nominal price peaks in 1973.
tiple growth patterns influencing constant common ratio of expansion. Nominal highs, as opposed to con-
the market at any given time. In stant dollar/inflation-adjusted his-
classical cyclical analysis, a 40-week cycle might be toric highs, were reached by the DJIA in 1966 and by the S&P
moving up while a 40-month cycle is moving down, and in 1968. The lows in 1974 represented the lowest nominal
the analyst seeks to find the point when the majority of prices reached after the 1973 peak, and many analysts consider
long- and short-term cycles are in sync, due to tops and 1974 as the true beginning of the macro bull market today.
bottoms together within a relatively short time span. The The S&P and DJIA reached their extreme intraday lows 45
analysis of growth patterns is similar in that the analyst trading days apart, and therefore, the 1974 bottom is what we
looks for that place in time where several growth patterns
intersect.
Classical analysis views market time as always moving
forward. A new cycle of any given length is expected to begin J
where the previous cycle ends. Growth pattern analysis
perceives market time as spherical and multidimensional.
Growth segments are contiguous, but the essence of their
continuity is skewed when portrayed on the plane.
Paradoxically, two contiguous segments may be separated Z
by long periods on the plane. This phenomenon is similar to
the difference in perspective that would arise if a flat map of
the Earth were wrapped around a globe. It would be obvious F
that it would not fit the space allotted, and the result would
bear little resemblance to the true thing. A spherical perspec-
B
tive requires that time be seen as revolving, and analysis
I E A C G
performed clockwise and counterclockwise, so that growth X
pattern segments not evident on the plane may be considered.
As few as three segments may be used for proper analysis. D
This would be equal to 270 degrees, or three-quarters of a
complete revolution of the log spiral. Values for market
moves may appear and reappear in different geometrical
shapes. A straight line may appear as a circle or triangle, or
as a series of noncontiguous straight lines. H
The book Ermanometry provides many different methods
for understanding and decoding the future path of spherical FIGURE 4: LOG SPIRAL. A log spiral of the nautilus shell, together with a
market movements. rectangular spiral (bounded by the log spiral), are displayed.

Copyright (c) Technical Analysis Inc.

Stocks & Commodities V17:2 (68-70): Log Spirals In The Stock Market by William T. Erman
ERMANOMETRY PRINCIPLES
The day count and determination of turning points for the
market moves illustrated in this article are based on certain
principles of Ermanometry. Following is a brief explanation
of the pertinent principles:
Pivot: The day when a specific market move, either up
or down, reaches its extreme intraday high or low
price. Closing prices are not considered.
Measuring time: Time is measured in increments as
small as 15 minutes. The largest increment is a single
trading day. Time is never measured in weeks or
months. Ermanometry does not count days when the
markets do not trade.
Compound pivot: The S&P and DJIA are considered
one market and are always analyzed in concert. A
compound pivot occurs when the two indices record
their extreme prices on different days. Currently, both
made their high extremes on July 20, but their lows
were made 26 trading days apart: September 1, and
refer to as a compound pivot: S&P, October 4, 1974; DJIA,
December 9, 1974. Both indices made important lows on both
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,
it is the logical starting point for identifying a macro log spiral.
The first move of sufficient importance considered in
identifying a macro log spiral is the advance from the S&P
1974 low to the 1976 top. On Figure 1, the heavy line
connecting points 1 and 2 shows this 497-day move. The
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
low, points 1 and 3, 859 days. Ermanometry considers the
time distance between any two important pivots as a separate
and distinct move, even if it encompasses other important
moves. Though the 859 days from low to low (points 1 and 3)
have already been considered a 497-day advance and a 362-
day decline, the 859 days are treated as a third move.
Only two moves, which will be referred to as seed seg-
ments when referring to log and rectangular spirals, can be
used to initially identify growth patterns because a constant
ratio of growth must be established. The 497- and 362-day
segments will be used first:
Step 1: Calculate the ratio between 497 and 362:
497/362 = 1.37293
The inverse of the ratio must also be calculated so that the spiral
may wind counterclockwise as well as clockwise:
1/1.37293 = 0.72836
A minimum of three segments, 270 degrees/three quadrants,
should be used when rotating counterclockwise.
Step 2: Place the seed segment values, 362 and 497, on segments
Copyright (c) Technical Analysis Inc.
October 8. Each of these low days represents the
lowest intraday price subsequent to the July 20th top.
Therefore, they are identified as two components of a
compound pivot. The components are interchange-
able and may be mixed and matched time may be
measured from a previous pivot to all components of
a compound pivot. It is quite common to measure from
a DJIA pivot to an S&P pivot, and vice versa. The
properties of the DJIA and S&P pivots are shared by
a third pivot, termed the balance point. A balance point
is that day precisely in between the two index pivots.
Therefore, the balance point for the September 1st
and October 8th index pivots would be 13 days for-
ward from the DJIA low and 13 days back from the S&P
low.
Ermanometry allows for a maximum error factor of two
days. This margin holds regardless of the length of
moves being analyzed, including moves of 20,000
days or more.
W.T.E.
DE and EF of the rectangular spiral. Using DE and EF allows for
three segments counterclockwise. (See Figure 5.)
Step 3: The values for the remaining segments of the rectangu-
lar spiral may be calculated using the constant growth/decay
ratios derived in step 1.
(497)(1.37293) = 682.35
(682)(1.37293) = 936.81, etc.
The following table shows the values for the rectangular sprial
segments:
Segments
AB = 139.88
BC = 192.05
CD = 263.67
DE = 362.00 (seed segment)
EF = 497.00 (seed segment)
FG = 682.35
GH = 936.81
HI = 1,286.17
IJ = 1,765.83
EXAMPLES
Numerous techniques exist for relating the spiral segments to
important tops and bottoms in the stock market. Refer to
Figure 2 for the numbered points on the charts. The dates
designated with an A are compound dates; for example,
points 6 and 6A represent the peaks for the S&P in 1980 and
the DJIA in 1981, 103 days apart. These points are the extreme
highs for the respective indices after the 1980 low, and
together, they make up a compound pivot.
Figure 6 begins the illustrations of how the various seg-
ments of the spiral constitute future market moves. The sum
of the two seed segments, DE and EF, added to the segment
90-degree counterclockwise, CD, totals 1,122.67 days. This
Stocks & Commodities V17:2 (68-70): Log Spirals In The Stock Market by William T. Erman

PROJECTING THE 1982 LOW

J
F

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

TOPLINE INVESTMENT GRAPHICS

2 4 80 150
80 84
76 9
82 100
80
78 5 7
is the number of days from point 3, the 1978 low, to the 1982 3 1122 - 25 Days 70
low. Three perpendicular lines, or 270 degrees, become a 1974
1
single straight line that is the four-year move. 75 80 85 90 95 00

Moving ahead, Figure 7 shows how the two seed seg-
ments clockwise, 180 degrees, add up to the entire 10-year
move, 1974-84. While Figure 6 showed how three perpen-
dicular lines straightened themselves out to become an
important move, Figure 7 shows how four perpendicular
lines, one complete revolution of the spiral, equate an
important 10-year move.
Another technique to project turning points is to use the
Pythagorean theorem. Figure 8 shows an example of using the
axis segments for projections. The Pythagorean theorem can
be used to calculate the value of each axis segment. Because of
the reversing inside-out character of the structure and identical
growth ratio, axis segments are additional tools for projections.
The two axis segments summed in Figure 8 represent the
advance from the 1978 low to the S&P peak in 1980, point 6.
The next technique is to use a single axis segment for
projections. Examining Figure 9 reveals that the 1,159-day
time distance value for FH exactly equals the days from the
1976 peak (both indices) to point 6A, the 1981 DJIA peak.
Points designated with an A do not appear separately on the
chart, and therefore, the 1,159-day line connects points 2 and
6 instead of points 2 and 6A.
Figure 10 is the sum of the six axis segments, and the
results constitute the entire advance from 1974 to 1987. The
error in this example is 1.32 days, within the allowed toler-
FIGURE 6: PROJECTING THE 1982 LOW. Points 1, 2, and 3 are called seed points.
All seed points are valid points from which to project forward, with values derived
from the spirals. When a projected point does in fact become an important pivot, that
new pivot is considered part of the spiral family and becomes a valid point from
which to project forward.
ance of two days.
What about the crash low in 1987? Figure 11 shows how
the four spiral segments connect the 1982 low with the crash
low of 1987. Note that segments CD, DE, EF connected the
1978 low to the 1982 low. (Refer to Figure 6.) The addition
of one more segment counterclockwise, BC, by 90 degrees,
and the total added to the 1982 low completes the entire move
from 1974 to 1987, low to low.
If we extend our range and use the larger spiral segments,
we can see that in Figure 12, we can project more distant
pivots. 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.
The peak in the market that occurred in the summer of 1998
is examined in Figure 13. The first three spiral segments
totaled the move illustrated in Figure 6. The next two seg-
ments, FG and GH, total 1,619 days, the move from 1978 to
1984. In Figure 6, this move is shown emanating from the

Copyright (c) Technical Analysis Inc.

 Stocks & Commodities V17:2 (68-70): Log Spirals In The Stock Market by William T. Erman

FIGURE 7: 10-YEAR 1974-

PROJECTING THE 1984 LOW PROJECTING THE 1980 S&P PEAK
84 MARKET ADVANCE, TWO
F SEED SEGMENTS AND 180
F
DEGREES CLOCKWISE. In
Figure 6, three perpendicular
B lines straightened themselves
B
out to become an important
I E A C G move. Here, four perpendicu- I E A C G
X X
lar lines one complete revo-
lution of the spiral equate
D an important 10-year move. D

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

80 82 100 constitute the entire advance 80 82 100

5 7 5 7
78
3 70
from 1974 to 1987. The error in 78
3 70
1974 this example is 1.32 days, 1974
1 within the allowed tolerance of 1
75 80 85 90 95 00 75 80 85 90 95 00
two days.

Copyright (c) Technical Analysis Inc.

Stocks & Commodities V17:2 (68-70): Log Spirals In The Stock Market by William T. Erman

PROJECTING THE 1987 LOW PROJECTING THE 1990 PEAK J

F

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
addition of the 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.
segment is used. We can consider that these parallel vectors
actually represent the circumference of a circle that has
been splintered into five straight lines, and we proceed to
calculate the diameter of such a circle by dividing the
circumference by pi:

A DIFFERENT 3603.11/3.14159 = 1,146.9, which rounds to 1,147

GEOMETRICAL SHAPE
Figure 14 is provided to illustrate two principles of Ermanometry Remember that the starting point for the spirals was the 1974
that have already been mentioned: S&P low; 1,147 is the time distance from the 1970 low to the
1974 DJIA low. It is possible to conclude that the 1,147-day
1 The DJIA & S&P are considered one market and the diameter gave rise to a circle visible in the segments of the
interaction between the two indices is very important in rectangular spiral. Removing segment AB from the preced-
projecting future pivots. ing 3,603.11 circumference gives us:
2 Ermanometry considers market time to be spherical and
difficult to graphically portray on a plane. 3,603.11 -139.8 = 3,463.31

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

Copyright (c) Technical Analysis Inc.

Stocks & Commodities V17:2 (68-70): Log Spirals In The Stock Market by William T. Erman

PROJECTING THE 1998 PEAK J

CONFIRMING THE 1978 LOW
F

I E
IJ 1765.83
B EF 497
Z AB 139.8
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

Copyright (c) Technical Analysis Inc.

Stocks & Commodities V17:2 (68-70): Log Spirals In The Stock Market by William T. Erman

PROJECTING THE 1982 LOW PROJECTING THE 1987 LOW

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

Copyright (c) Technical Analysis Inc.

 Stocks & Commodities V17:2 (68-70): Log Spirals In The Stock Market by William T. Erman

FIGURE 17: RECONFIRMATION

PROJECTING THE 1998 PEAK CONFIRMING THE 1978 LOW
OF THE SUMMER 1998 PEAK.
F
From the S&P 1974 low to July 20, F
1998, is 6,012 days, the total of the
eight spiral segments in Figure 17.
B This peak was also projected in B
Figure 12, illustrating the 4,028-
I E A C G I E A C G
X day move from August 12, 1982. X

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.

FIGURE 19: RIGHT TRIANGLES.

PROJECTING THE 09-01-98 DJIA LOW PROJECTING THE 1982 LOW
Consider right triangle FGH; the
F legs are segments of the rectangu- F
lar spiral, FG a seed segment, and
GH the contiguous segment and
B also the market move from 1976 B
down to 1982. The hypotenuse is
I E A C G I E A C G
X axis segment FH and its value is X
easily computed with the
Pythagorean theorem. The perim-
D D
eter of right triangle FGH is 4,059,
the number of days from August
AB 55.69
12, 1982, to September 1, 1998, BC 96.25
FG 859 the current DJIA low. CD 166.36
GH 1484.67 DE 287.55
FH 1715.26 EF 497
H FG 859 H
4058.95 round to 4059
1961.85
14 14
98 98
Standard & Poor s Composite 1000 Standard & Poor s Composite 1000
98 98
(monthly) (monthly)
15 15
700 700
FIGURE 20: BALANCE POINTS.
12 500 12 500
10
90 A balance point is that day that lies 10
90
87 87
exactly in the middle of two end
300 300
90 pivots of a compound pivot. Since 90
8 13 8 13
83 87 200 the compound pivot at the 1974 83 87 200
6 6
4 80
11 low was 45 days wide, the balance 4 80
11
2 4059 - 62 Days 150 2 150
76 80 84
9
point would be 22.5 days after the 76 80 84
9
82 100 S&P pivot, and 22.5 days before 82 100
80 80
78 5 7 the DJIA pivot. The time distance 78 5 7
3 70 3 70
1974
from the balance point, at point 1, 1974
1958.5 - 61.5 Days
1
75 80 85 90 95 00
to the 1982 low, August 12, 1974, 1
75 80 85 90 95 00
is 1,961.5 days.

Copyright (c) Technical Analysis Inc.

Stocks & Commodities V17:2 (68-70): Log Spirals In The Stock Market by William T. Erman

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

from August 12, 1982.

An additional example of using continuous spiral seg- B
ments as a confirmation tool is Figure 18. Recall that in I E A C G
X
Figure 14, the 1,102-day time distance from the 1970 low to
the S&P 1974 was considered the diameter of a circle, and
D
reincarnated as the circumference of a circle on spiral seg-
ments. In this example, the 1,102 days appear as five contigu-
ous spiral segments.
The appearance of the 1970-74 1,102-day move in a spiral 2566.35
created by subsequent moves (1974-76-78) is a confirmation H
that the 1978-low day could be a major pivot day. Figure 18
would be used in conjunction with the illustrated example in Dow Jones Industrials
3400
(actual high and low, daily)
Figure 14 as additional confirmation.

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.

market moves appearing in dif-

FIGURE 21: 1992 LOW. Spiral segments, HI, added to the 1982 low,
ferent geometrical forms. 6A, projects an important low in 1992. This is the first example of a
A very common form is the right triangle. Consider right minor move, although it is minor only in relation to the other examples.
triangle FGH, Figure 19. The legs are segments of the rectan- A short-term trader would have considered the October 5, 1992, turn
a major event. This pivot is 2,566 days from the August 12, 1982, low.
gular spiral, FG a seed segment, and GH the contiguous
segment and also the market move from 1976 down to 1982.
The hypotenuse is axis segment FH and its value is easily
computed with the Pythagorean theorem. The perimeter of
right triangle FGH is 4,059, the number of days from August
12, 1982, to September 1, 1998, the current DJIA low. USING DISCONTINUOUS FOUR TERM PROPORTIONS
Another method deals with the issue of a compound pivot. (653.39)
F
As explained in the sidebar, a compound pivot occurs when
the two indices record their extreme prices on different days.
To deal with this, we use a balance point, which is that day B

exactly in the middle of two end pivots of a compound pivot. I E A

X
C G
Since the compound pivot at the 1974 low was 45 days wide
(Figures 2 and 20), the balance point would be 22.5 days after D
the S&P pivot and 22.5 days before the DJIA pivot. The time
distance from the balance point at point 1 to the 1982 low,
EF 497
August 12, 1974, is 1,961.5 days. This confirms the projec- GH 859
EG 820.9
tions in Figures 6 and 15. Balance points are used extensively FH 1079.2
in all of the Ermanometric algorithms. 3256.1 H

Earlier, we stated that many major and minor market

moves were influenced by the 1974-78 market moves. Figure FIGURE 22: TWO OPPOSING SIMILAR TRIANGLES. Only the oppos-
21, where a spiral segment, HI, added to the 1982 low, 6A, ing triangles have been calculated, and the sum of their perimeters
equals 3256. The number of days from the 1974 low to the 1987 peak
projects an important low in 1992, is the first example of a is 3,257 days, as also projected in Figure 10.
minor move, although it is minor only in relation to the other
examples. A short-term trader would have considered the
October 5, 1992, turn a major event. This pivot is 2,566 days
from the August 12, 1982, low.

Copyright (c) Technical Analysis Inc.

Stocks & Commodities V17:2 (68-70): Log Spirals In The Stock Market by William T. Erman

BEYOND THE BASICS TURNING THE SPIRAL INSIDE OUT

The 20 examples shown thus far are merely the tip of the (XF = 653.39)
iceberg of future turbulence created by the market action of F

1974-78. There is a great deal more to this iceberg that will

cause the Titanic market to continually change course at B
projected pivot days. Perhaps this is a poor analogy, since in I E A C G
X
this case the iceberg cannot sink the market! Additional
exploration can be accomplished by calculating the square
D
root of the growth ratio between 497 and 859. The growth
ratio we have been using for these two seed segments is
1.72837, and the square root of the ratio is 1.31467, which we EX 497
XG 859
will now use as a growth ratio to get deeper inside the spiral. EF 820.9
FG 1079.2
3256.1 H
(497)(1.31467) = 653.3934
(653.3934)(1.31467) = 859 98
14

Standard & Poor s Composite 1000

98
Only the original seed segments are placed on the spiral. (The (monthly)
15
700
spiral diagram is not to scale.) The axes segments can be
500
calculated, as explained previously. 3257 Days 10 12
90
87
Now, in Figure 22, we are summing the perimeters of two 300
90
opposing similar triangles. Only the opposing triangles have 8 13
83 87 200
been calculated and the sum of their perimeters equals 3,256. 6
11
2 4 80 150
The number of days from the 1974 low to the 1987 peak is 76 80 84
9
3,257 days, as also projected in Figure 10. 80 82 100
78 5 7
Moving to Figure 23, we see that if the value 820.9 (from 3 70

Figure 22) is placed on segment EF, and segments FG, EX,
and XG are calculated with the square root of the same
constant growth ratio used throughout the 497859 seed
segment example, the result is a right triangle, EFG. The
perimeter of this triangle equals the perimeters of the two
opposing triangles in Figure 22. Earlier, I stated that the axes
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
axes segments EG and FH from Figure 22 are used as spiral
segments and the spiral segments, EF and GH from Figure 22,
become axes segments EX and XG. This type of exercise may
be redundant, but I have presented it to illustrate different
approaches to analyzing spiral segments.
1974
1
75 80 85 90 95 00
FIGURE 23: RECTANGULAR SEGMENTS AND AXES SEGMENTS
CHANGE PLACES. Since all segments of the diagram have the same
growth ratio, the ratios can be interchanged without changing the shape
of the spiral. Figure 23 is an example of switching the segments from
Figure 22. Now the sum of the perimeter of triangle EFG equals 3,256.
Robert Prechter, Jim Tillman, and Walter Bressert for pio-
neering work in making the investment community aware of
the importance of timing analysis. This article is dedicated to
Jeffrey Horovitz, the former director of The Foundation for
the Study of Cycles, whose support has never wavered.
Charts were supplied by Topline Investment Graphics.

CONCLUDING COMMENTS RELATED READING

We may appreciate the markets for their harmonious and
disciplined movements, and even as objects of beauty. How-
ever, that admiration can only bring esthetic rewards. A true
belief in perfectly patterned markets should spur the reader to
uncover more evidence of order and to profit from it.
Ermanometry uses many other algorithms for pattern analy-
sis, and not only do they have to confirm growth analysis
projections, but spirals from different time frames must
intersect at future pivot points to increase the potential of any
specific date.
William Erman, the founder of Ermanometry Research, wishes
to express his appreciation to Sam Hale, CMT, chairman of
the Body of Knowledge Committee, the Market Technicians
Association, for his review and constructive commentary
during the evolution of the bases of Ermanometry, and to
Erman, William T. [1999]. Ermanometry: The Perfectly
Patterned Markets, Ermanometry Research, Box 50785,
Nashville, TN 37205.
Dunham, William [1990]. Journey Through Genius, John
Wiley & Sons.
Gleick, James [1987]. Chaos, Viking Penguin, New York.
Huntley, H.E. [1970]. The Divine Proportion, Dover Publi-
cations, New York.
Reichenbach, Hans [1958]. The Philosophy Of Space And
Time, Dover Publications, New York.
Thompson, DArcy [1961]. On Growth And Form, Cam-
bridge University Press.
Topline Investment Graphics, PO Box 2340, Boulder, CO
80306-2340, 303 440-0157, www.topline-charts.com.
See Traders Glossary for definition S&C

Copyright (c) Technical Analysis Inc.