Nov

12

checjersI started my career in counting stocks 53 years ago, by counting stocks below $1 and then at round numbers. To keep in practice, I am always prone to a hand study of this or that round number. I once found that stocks that break above $10 have fantastic future returns, but the study was marred by an inordinate predominance during the time when the weekly columnist was imprinted. I just looked at breaks below the round in the S&P index since year end. The market starts circa 1500 and ends at 900, a decline of 600, or three points a trading day. There were 23 breaks below the round number, averaging a decline on the day of the break of 32 points. Holding to the next round either + or - yields random results, as does holding for the next x days. However, there was an inordinate tendency to rise the next day.

Jeff Watson writes:

I've often heard comparisons of when the market "goes for the buck," or tries to hit a round number as a strong gravitational attraction.  Since gravity is only one of the four fundamental forces in the universe, I wonder how one could correlate market action with the characteristics of strong interaction force, electromagnetic force, and weak force. Although the aforementioned forces have similarities, they are very different in scope, strength, and range. Two of the forces, strong interaction and electromagnetic, can also have repulsive qualities.  Many numbers and price levels in the market have repulsive qualities also. Many years ago, I tried to apply and integrate different natural laws, mainly Newtonian derived, to the markets.  My quest for an oracle using physics was soundly rebuffed and I shifted my quest. I found better results using some kinetics applications (reaction rates), until the market cycle shifted and rendered it useless.

Victor Niederhoffer  adds:

I was inspired to do the hand study as the S&P broke below the round today at the close and then broke above in Japan trading hours. But really what did it was the always down to earth, checker like posts of Alan Millhone. I went to see the checker and chess table at Central Park with Aubrey Sunday, and there were two chess players, five degenerates and a Mah Jong player sitting at the twenty tables. New York must have one thousand tables with boards inscribed and I always check them out, hopeful that there will be a game. I was particularly hopeful on Arthur Avenue in Little Italy at the Italian park on 187th street and Arthur, as I read in a puff piece that your purses are always returned there and the old world traditions like checkers live on. But no, just sandwiches and cards there. There is something checker like in the moves below and above the round. A sort of third position like thing where you get  strength from rebuilding in the double corner. Or maybe it's like a Five Man Dyke, and the only way to break it is with a rather ephemeral pitch or else you're doomed. 

Jim Sogi responds:

I have been studying QED, a Strange Theory of Light and Matter by Richard Feynman, recommended by an erudite Spec. This is a truly wonderful book, and I will post some ideas shortly. In brief, Feynman uses a system of probability arrows based on time and direction to compute the total probabilities of the path dependency of light. Contrary to common sense, light does not necessarily travel in a straight short line, but may take more circuitous paths with reduced probabilities. A light came on on seeing this as a possible way to look at path dependencies of the market price.

Feynman explains the math in a simple manner analogous to computing mathematical multiplication problems such as 250*130 by putting pebbles in jars, say 130 pebbles into 250 jars, dumping them in a pile and counting them. This is something a 2.5 year old could do without having memorized the multiplication tables. The idea is that a 55 year old philosopher with little math can use Feynman arrows to compute probabilities of path dependencies accurately without 7 years of formal study. This is connected in an as yet undetermined way to the questions of are drops faster than rises, and the polar angles of price paths. Chair's questions often delve into the path dependencies of price in this case at the round. Surely at some point we will see 1000, 1100, and even 1200. The question is whether it will beat holding a bond, or if one will go bust before seeing the profit or whether other paths in the interim will give a greater profit. This is the importance of path dependency.


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