Name, Sometimes Called:
MESA Sine Wave
MESA is an acronym for Maximum Entropy Spectral Analysis.
Brief Description:
Primarily used to examine short-term cycles, the MESA Sine Wave can be used to determine whether or not an issue is “cycling” (that is, not trending) by how closely the TAI approximates a sine wave. The closer the approximation, the more the security is “cycling.” The less the TAI resembles a sine wave, the more the security is trending.
Definitions, Formulas:
The MESA Sine Wave TAI can be used to determine whether
or not a security is trending
or “cycling” by how closely the TAI approximates a sine wave. The
closer the approximation, the more the security is “cycling.” See
secular
market and cyclical
market.
The MESA Sine Wave TAI consists of two plots. One is the sine of the measured phase angle over the specified time period and the other is the sine of the phase angle advanced by 45 degrees (called the leading sine). Together, the crossings of the sine and lead sine plots give clear advanced indication of cycle mode turning points.
The phase angle calculation is more complex than we wish to explain here. For details, see the references in the History section below.
We use a 25-day period.
Positive Development Calculation:
For this TAI, a new positive development (NPD) occurs when the sine plot crosses above the leading sine plot.
This TAI is no longer positive when the sine plot crosses below the leading sine plot.
If this TAI is still positive tomorrow, it will no longer be new, but will
be a cumulative positive development (CPD). If this TAI was a new positive development (NPD)
yesterday, and is still positive today, then it becomes a cumulative
positive development (CPD).
History:
Maximum Entropy Spectral Analysis (MESA) was first
applied as an oil-exploration tool, drawing on the 1976 work of
John Burg, a researcher who first developed and published the method.
It was later adapted for advanced radar jamming by the defense industry.
In these contexts, MESA has been used to obtain “high-resolution”
measurements from short data samples. John F. Ehlers, an electrical
engineer by training, first applied the method to analysis of stock
price data. It is described in his article “Stay in Phase,” (Technical
Analysis of Stocks & Commodities, Nov. 1996, vol. 14, no. 11,
pp. 483-487.) Available as a PDF file from http://store.traders.com/-v14-c11-stayinp-pdf.html;
currently priced at $4.95. For a more complete exposition of the
development, mathematics, and particular characteristics of MESA,
refer to Ehlers’ book MESA and Trading Market Cycles (2nd
edition, John Wiley & Sons, January, 2002).
A useful attribute of the MESA Sine Wave TAI is that it anticipates
cycle mode turning points, rather than waiting for confirmation
as is the case with most other oscillators. The TAI has the additional
advantage that trend mode whipsaw
signals are minimized.
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