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David Harris is an independent stock market investor and trader with an interest in modeling price movements in stock markets. In particular, David has spent the last ten years developing mathematical models to identify market tops and market bottoms and more recently a model that identifies... More
  • Bubble Trouble In Argentina 2 comments
    May 11, 2014 5:04 PM


    • Argentina's stock market index (MERV) has been in a bubble state since late Summer 2013.
    • Early evidence of a bubble forming in the MERV index first appeared in early 2013.
    • MERV has just formed an Evening Star candlestick on the weekly chart and is potentially topping out of its bubble.

    Over the past few months I have been developing a mathematical model to identify stock market bubbles. The model correctly identifies many bubbles throughout history, but in particular it correctly identifies the 1929 and 1987 crashes in the DJIA and the NASDAQ technology bubble in 2000, also the bubbles in Hong Kong in the 1990's and 2007, the Japan bubble in the late 1980's, the oil bubble in 2008 and the China stock market bubble in 2007.

    Having back tested the model on past history, I searched for a more current situation. Argentina's stock market index MERV popped on the RADAR. Over the past few days the MERV index has reached a turning point. The index is just short of 7,000 and may push higher to reach that target, however, at the current levels it looks like the index is in a top formation. Wednesday, May 7th was a closing high of 6,921.64 and Thursday, May 8th had an all time high of 6,944.22 just short of 7,000. We will have to wait and see what the next few trading days bring to see if the top was indeed recorded last week.

    One further point is that once a bubble is formed the model predicts that the bubble must deflate down to levels that the index recorded close to the point when the bubble started to form. More specifically the index will visit its 200 Day Moving Average and eventually go well below the 200 DMA before a bottom is reached.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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Comments (2)
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  • KJP712
    , contributor
    Comments (472) | Send Message
    Where do you see the Bovespa heading for late 2014 ? Agree on the Argentina Index.
    11 May 2014, 08:16 PM Reply Like
  • HarrisD
    , contributor
    Comments (27) | Send Message
    Author’s reply » Thanks for your comment and feedback


    I have applied the model to Bovespa, and as you probably know all the bubble action there has been and gone. I don't think we have seen a bottom yet in Brazil, so I see Bovespa moving lower in 2014 and into next year. I anticipate a global slowdown in stock markets this year into next, which will affect the US, and I don't believe Brazil will escape. We are in a massive trading range like the 1970s, so I think we all head lower from here.
    11 May 2014, 09:43 PM Reply Like
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