Oct

5

Black To me the biggest assumption about financial markets is that history will repeat. The second biggest assumption is that the Great Depression won't.

At least in terms of volatility, it looks like we are going to test both these assumptions soon.

VXO is recently over 50, which has occurred infrequently since inception in 1986. But this is a short time when studying mass-extinctions, so to study volatility over longer periods I used DJIA daily returns 1928-present, and for every non-overlapping 10 day period I calculated the STDEV. This chart shows the recent 10 day/daily STDEV is >3%, which occurred recently only in 1997, 1998, and 2001. Prior to this, all the instances were in the 1920s and 30s.

Mark Isbic writes:

Today here in Israel, the mother of all swans started with the TA 25 and 100 down 7% and the Tel Tech down over 11%. If this is any indication, tomorrow will be very ugly unfortunately. I say to myself it will be a great time to jump in. Unfortunately I have been doing this for several months and have taken a beating!

Jason Shapiro remarks:

Anybody see the Bloomberg story about how current financial conditions are a black swan event? Statistically they say this is rarer than a comet's destroying the earth. And the data they used go all the way back to 1993!

Aug

15

T MarksA good friend from the Comex metals pits told me about a year ago he wanted to eschew the violent volatility in those markets. Recently at one point, silver had dropped about 5 1/2 bucks the last month alone, $27,500/contract.

Looking for a more placid pastime, went eyeing individual stocks. Amongst others, recently some of the biotech persuasion. Out of the frying pan, into the fire. Oops.

Bought 5000 Elan at $24, quickly went over $37. Analysts were saying eventually over $70. Clinical results come out, a few patients got sick out of 31,800 on the new drug.

Check out the chart for your basic what-the-heck picture. He didn't get out after the first big gap, saying that it was still only a few bucks underwater from his entry, and wanted to weather the storm.

The next gap though was a doozy!

Mark Isbic writes:

You can get the same momentum and potential with the Casino stocks with less risk of being blindsided by a study from pencil pushers. I'm long LVS and Wynn. At least with these you can see the future and potential with less chance of being blindsided and a large upside. Certainly the same could be said for other groups, but I'm not a professional trader like the majority here. I simply follow a few groups, build a position when they get slaughtered and hang on for the hopeful rise. As usual I'm always a little early. The only thing i own that resembles a biotech is Merck. I bought it a few weeks ago at 35 only to watch it go down to 31 or so the next day based on what else, a study on Vytorin. The shorts love to hate LVS because of the big P/E, debt issues etc., but in my humble view it has the most potential to run the fastest because it has a great storyline with Singapore's Marina Bay Sands and with most stocks it's all about the story lines.

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