Dec

27

SwingOne of the most intriguing questions about markets is whether they swing. The subject is a very difficult one, because random prices look like they swing, and if you look at a series of highs and lows of prices generated by a random walk, you'll be able to come up with times when it looked great to sell and times when it looked great to buy. The question is whether there are such points that can be ascertained in advance.

The question could be divided into many subdivisions, do prices swing, have they swung, will they swing, and what happens after they swing? If they swing, do they swing between fixed intervals or do they swing between prices without regard to a fixed rhythm.

In order to make a start on this I looked at all moves of 10 points or more on two consecutive one day periods, either plus or minus.

10 Point Swing StudyResults of this very preliminary test do not indicate that big moves swing on a 1 day basis for S&P. Note that this is a very different question from whether it's good to buy after a down 10 point move. It turns out that the expectation the next day after a down 10 point move is the same as after a up 10 point move, about 1/2 a point, just enough to cover commissions on a day with a standard deviation of 17.

There are numerous extensions of this line of consideration.

Alan Millhone adds:

In further thinking…  Maybe the market is the constant and it makes the investor swing to the market's music ?

I was building a house one time and a fellow was watching the bricklayers apply the exterior to the house and he remarked to me, "Does the mortar hold the bricks together or do the bricks hold the mortar in place?"

The market can't exist without investors and in turn the investor either buying or selling makes the Market Mistress dance to various melodies. Some are cheery and some are not.


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