Nov

17

 When a virtual tsunami hits, the markets tend to thrash around for a time until they figure it out. If you individually tend to be prescient, go with your instincts. But if your opinions first need some direction from the markets, how long do you wait? Put another way, how many time periods does it take before the detritus left by the tsunami clears? There are several guidelines.

Is the tsunami a one-off event, or is it a rolling event. For example, we all thought Brexit was one-off, but now with court challenges it appears to have legs. One-off events clear faster, obviously, since the rolling ones have the possibility of reversal or modification.

With more "professionally-traded" markets, detritus clears faster. Those who take positions in forex, futures and options (particularly the writers) do not have the luxury of time. Or more to the point, they do not have the margin money. If you look at market-derived information you must be conscious of intra-day movement, particularly that from the two most important times of the day.

The more amateur the market, the more time it takes before you get a clear picture. In this case of course we are talking bonds and stocks, but particularly stocks. But even though those guys tend to act slowly, the markets clear remarkably fast. How long? Typically between 4 and 8 trading days. So we are just now getting there.

Obviously the lesson for the spec is to watch the leveraged markets.

Now, a sidebar question for the "technicians": what do you do with the information (i.e. prices) that occurred during the tsunami? One of our favorite gurus, a CalTech AI expert we call BikerBoy says, "You never, ever throw away information."


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