Apr
15
As the Market Goes Back and Forth, from Victor Niederhoffer
April 15, 2008 |
As the market goes back and forth, trying to scare out the longs and then the shorts in one market or the other, stocks, bonds, et. al., and a call for more barbecue appears on this web site, one thinks of Beethoven's meeting with Rossini, when Rossini came to pay honor to the downtrodden, overlooked Beethoven in 1814 while he was in eclipse to the popular Italian operas. "Give us more Barber" Beethoven said, "and whatever you do, stick to comic opera."
What we need is more square dancing. The market going back and forth, in its very civil way, around unchanged, it's like a do si do. We need more square dancing insights (and other dancing insights) into markets.
Art Cooper replies:
It reminds me of a merengue, the partners circling each other slowly and majestically (although the tempo of the music might become frantic), sometimes twisting their handholds into intricate pretzels, sometimes separating completely while remaining "tied" to each other, their steps remaining small, each partner suggesting actions which are never quite realized.
Jim Sogi adds:
In ballroom dancing you have the basic box step, a square pattern, then after a few of those, a line step. I'm not sure what they call it, but when you dance forward or back and cover some ground. Like the market did last week, then down. Now box step, then… In country dancing, a move is sometimes punctuated by swinging your partner around in a spin. It all has a nice rhythm and feel to it with a lot of back and forth motion and various patterns set to a cadence. Our markets sure have a nicer feel to it now than the head banging mosh pit earlier this year.
Recently, The Sunbaked Spec gave me an Indo Board to play with. Its lots of fun. It's a board on a single roller and you have to balance on it, and roll it back and forth. At first I couldn't understand why he gave it to me, but now I do. It's the perfect physical demonstration of how the markets have this tendency to roll quickly to one side or the other. Like Friday with the down volume multiples of up, or today slamming the other direction up, and Monday and Tuesday balanced in the middle. Its fun, but you have to watch out because if you are off balance, you will fall on your butt. Kind of like trading.
Duncan Coker comments:
This market of late is definitely a Quick Step, one of the fastest and most complex of the Ballroom dances. It is full of syncopated steps, explosive running and hopping moves with lots of rotation and momentum. It has some similarities to a waltz but is a dance in 4/4 time. But many of the step are 1/8th note duration and very fast. It was most popular during the Jazz Age, when the wire houses, pools and syndicates moved the markets, when fortunes were made and lost at the bucket shops and curbs.
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This market? Grunge - definitely grunge.
About this time last year it was reggae - ganja and all…
Cheers,
GP
I caught a report a few months ago, I think I remember this correctly, where a former SAC Capital trader was suing his former employer on sexual harassment grounds and alleged that his superior forced him to take estrogen because his superior claimed it would make him a more profitable trader. I was thinking of this when I read about the recent London study that came out today about trading success and testosterone levels!
Ballroom dancing is formal, social dancing. The word “ball” is from the Latin word ballare, which means dance. Ballroom dancing is done by a couple; one person leads and the other follows the steps.
When a speculator is in-step with the market it is a partnership, the market leads and the partner follows. There is an elegant flow, a passion,and an overall magical dynamic to the project. Perhaps an adequete visual to this is Al Pacino and Gabrielle Anwar in Scent of a Woman. They perform an Argentine Tango to ‘Por Una Cabeza’. Even though Ms. Anwar who plays Donna is inexperienced and a bit afraid, Colonel Slade played by Mr. Pacino gently yet firmly leads his partner around the dance floor to the ultimate applause of the admiring onlookers.
http://youtube.com/watch?v=Py9JcjGtfSg
When one is out-of-step with the market is can be best described by the lyrics to One Step Up by Bruce Springsteen:
Woke up this morning my house was cold
Checked out the furnace she wasn’t burnin’
Went out and hopped in my old Ford
Hit the engine but she ain’t turnin’
We’ve given each other some hard lessons lately
But we ain’t learnin’
We’re the same sad story that’s a fact
One step up and two steps back
http://youtube.com/watch?v=1dfKdk6d6yQ
sl.
The “square dancing” environment has been suitable for some volatility selling particularly after the mid-March spike in IV when the pundits expected the “end of the world as we know it”.
VIX below 21 could give volatility sellers another profitable leg down to 18 at which point some deleveraging is in order.
More like bungee jumping. At the point you are, as it were, about to hit pay dirt, the bungee yanks you back to the start.
The following is excellent. I would love to get some feedback from the Daily Spec readers…
Five Delectable Examples of "Stein's Law"
By Dr. Woody Brock
http://www.marketoracle.co.uk/Article4343.html
With all due respect Mr. Walton, the piece by Woody Brock seems like a rant by some eccentric who thinks he has all the answers and that everyone else, including the Nobel prizes in Econ, (in fact, especially the Nobel prizes) has it all wrong. I tried to read the whole thing but I must admit there were a few paragraphs that my eyes just skipped over, it was that bad. He starts with a few basic observations that most people would probably agree with (especially after the fact, but the challenge is to identify bubble before they happen…) then goes off more and more into the deep end of his own eccentric, quirky and unsubstantiated views. Dr. Brock against the world! As J.M Keynes once said "it surprising how bizarre a theory one can come up if one thinks too long alone".
Can you tell me, in one or two sentences what you found in the Brock article that seemed worthwhile.
Jim, I got an Indo Board about eight years ago for Christmas. After falling down a whole lot, and nearly giving up, I was finally able to learn the rudiments of the whole thing. I likened the learning curve of the Indo Board to a child learning to walk, or a person learning to trade. Learning curves must vary from person to person, as my son was able to get up in the Indo Board within five minutes. I'm on my second Indo Board right now, and use it as part of my physical regimen. Being the second oldet guy in our lineup, I have to work smarter and take every advantage I can over guys who are half my age to catch waves. There are interesting market parallels here, also.
Commentary on Stein’s law. The most basic statement of Stein’s Law says: “If something cannot go on forever, it will stop”. More specifically, the late Herb Stein stressed that, when a trend cannot go on, it always stops–even when nothing is done about it.
Although I have deep respect for Herb and Ben for that matter, I am trying to ascertain the practical application of such supposed law. In broad brush terms, I would think this would be applicable to be used in concert with other theorems to have practical usage in the financial markets. For example, if one likes technical analysis and the trend is exhausted what might one expect the pattern will be going forward. Wave theory would state that 5 waves up and 3 down. Lobagola analysis would suggest a full retracement to the starting point . Fibonnaci numbers would be 38 % retracement then 50% then 62% then 100%
The next question is what are the determinate numbers that can be used to decide that a trend has run its course and is not just pausing or resting if you will. In light of the recent magnificent rise of the precious yellow, I think back to when the Hunt brothers tried to corner the silver market and as a result all precious metals hit all-time highs. then they collapsed like a house of cards. What does this portend for the current climate.
In my judgment, these are the questions that one should be asking.
As a sidebar, regression to the mean is one of the least understood and most difficult concepts to grasp. I have seen many learned men and women over the years, get this concept horribly wrong and it has proved to be terribly costly.