What information does cubic regression gives us?
Before we dive deeper in the application of C.R. (cubic regression) on stock values we give some characterizations about cubic curves. This is best done using pictures (examples will follow later):
Fig. 7 The three phases A, B and C associated with a rising cubic.
We say that a stock value is in phase A if its associated C.R. is rising and has left a minimum behind and is rising with no maximum in sight.
A stock value is in phase B if its associated C.R. is rising and has left a maximum behind and is descending with a minimum in sight. In other words it is between a maximum and a minimum.
A stock value is in phase C if its associated C.R. is rising and always was, and has first a maximum and then a minimum in sight. Note that this only happens on rare occasions.
Fig. 8 The three phases D, E and F associated with a falling cubic.
We say that a stock value is in phase D if its associated C.R. is falling and has left a maximum behind and is falling with no minimum in sight.
A stock value is in phase E if its associated C.R. is falling and has left a minimum behind and is rising with a maximum in sight. In other words it is between a minimum and a maximum.
A stock value is in phase C if its associated C.R. is falling and always was, and has first a minimum and then a maximum in sight. Note that this only happens on rare occasions.
Fig. 9 The only phase G associated with a rising cubic.
A stock value is in phase G if its associated C.R. is rising and has no minimum behind it and no maximum before it.
Fig. 10 The only phase H associated with a falling cubic.
A stock value is in phase H if its associated C.R. is falling and has no maximum behind it and no minimum before it.
I use this mnemonic trick to remember these phases:
- A : All is good!
- B : Buying time!
- D: Down, down, down!
- E: SELL!
- G: Good!
- H: Horrible!