Dec

14

V NHarmony. There is something beautifully harmonious in the the ranges of the last two Fridays on the 24 hours S&P futures.

date   high low close

12/12 887 829 886

12/05 880 817 873

In one day in each case the high and low recapped the entire range of the previous week. Each of the three entries in the first row is 10 points higher than the corresponding entry in the second row. The range of 7% in each day gives the opportunity for untold losses and wealth and hope and glory and failure. Yet, just 10 points up from one week to another. Ugly things. It is well known that the ugliest sounding things on a menu are often the best and most delicious. They wouldn't get on the menu unless they were good. A similar phenomenon we all know from Chorus Line where the song "dance 10, looks 2" shows that the girls who don't look good in certain ways never get the good parts, and the girls who don't look good who do get the parts are superb dancers or singers. I recently came across this phenomenon at a performance of the Nutcracker with the youngster. All the girl dancers looked like Cinderella's step sisters, but goodness, they were fantastic. Most of us have had similar experience with this in romance and many proverbs attest to the fact that the persona of the beautiful blond is often lacking in certain respects, if only to keep the stage door Johnnies in check. This principle would seem to have general applicability and I will have to check with my behavioral psychology friends, especially Katie and Dr. Brett to see if some hypothetical study has limned this phenomenon in one of the multiple promiscuous hypotheses that always prove a point in one sample of another of such studies depending on how much the "students " and "contrived experiments" are set up.

I like to buy stocks at the ugliest times and the comment by Harry Reid that he shudders to think of what's going to happen to the market was such a time, at 830 S&P at 3 am 12/12. The comparable decline on the French Inside trading day which went from down 40 to down 70 as they exited from their positions before the announcement must be distinguished. The phenomenon can be studied systematically, and before October of this year, the results were very interesting. Take a position on the rumor and exit it on the announcement. No better exemplars of this rule have come than a proper and systematic analysis of the news relating to bailouts. Whenever a bailout is consummated, the market drops like a rock. Whenever it is not consummated the market goes up. I guess the market has an inner soul that realizes that industrial policy has to lead to the decline of what America stands for relative to business, thus destroying the system of incentives, and proper allocation of resources that is the hallmark of an enterprise profit and loss system. Symmetric conclusion.

My daughter Katie who taught an intro psych class at UT Austin before taking her present job at the social networking startup Dachis company told me that the "peak-end rule" is much studied in psychology. It inspired me to enumerate some systematics in a real world context showing that ends that are really peaks in the market are much more variable after down peaks than up peaks. To see if the end is truly the be all and end all, one should at least look at peaks that are at the beginning to see if there is a difference. Without in any way violating our mandate here always to be meal for a lifetimish rather than meal for a dayish, I thought the least I could do is report the comparable results for peaks at the beginning of the period. In addition, I thought for the sake of science itself the results should be reported. Here they are:

.Peaks at beginning of period

.    number       mean change   

.                      one day         variability  

.max 300       -1                    12       

.min 250         -0.5                17

The above results are for 120 (10 minute) intervals from 1999 to present. Once more there is nary a difference in the means but the variability after the downs is twice as great as the variability after the rises. One notes also the curious phenomenon that in a period when the market went down by almost 600 points adjusted, there were 20% more highs than lows at the opening. Such is the wisdom of the market mistress in relieving the weak from their chips.

Architecture and conducting. I am working on a piece on the lessons to be learned from conducting and architecture for markets. There are hidden regularities in both fields that make the output harmonious and beautiful. I would be interested in any ideas that you all may have on this.


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