Estimating Future Prices

The following graphical technique enables you to create a chart that estimates future prices for a stock or market index whose prices are in a long-term uptrend, but have made a recent major correction. The technique estimates the earliest and latest date that prices will return to the previous major high.

To create the chart complete the following steps:

Chart prices on logarithmic scale. Use weekly or monthly prices (closes or averages) for a 10 to 20 year period.
Draw a horizontal line touching the peak price. Extend the line 10 to 15 years beyond the year of the peak price.
Draw long-term trendline connecting major lows that occurred before the peak price.
Locate the major low that occurs after the peak price.
Draw the post-peak trendline that touches the after-peak low and is parallel to long-term trendline. The post-peak trendline will be to the right of the long-term trendline.
Drop a vertical line connecting the intersection of the horizontal peak price line and the long-term trendline line to the date axis of the chart. This date is the earliest prices would recover to the the old peak price.
Drop a vertical line connecting the intersection of the horizontal peak price line and the post-peak trendline to the date axis of the chart. This date is the latest prices would recover to the the old peak price prices.

Limitations of the Technique.

The location of pre-peak long-term trendline is critical because it determines the earliest and latest recovery dates. If you draw the trendline with a steep slope, the recovery dates occur sooner than if the slope is shallow.

Also, the current low price after the peak determines the starting point for the post-peak trendline. If a lower low occurs in the future, you will have to redraw the post-peak trendline, which will push out the latest recovery date.

Nasdaq

The Nasdaq price chart shows the 2000 peak and subsequent downside.

The log scale straightens the prices so you can plot a long-term trendline. The estimates of the earliest recovery date is 2005 and the latest recovery date is 2010.