Apr

4

 Friday ended 4 consecutive up weeks, in DJIA comprising almost 21% gain. This came after a down week (-6% in early March, before super-heroes rescued the world).

Looking for patterns of a down week followed by 4 consecutive up weeks (DUUUU), the recent 21% is the third biggest up-move. Here are similar past moves in DJIA, along with the returns of the following 4 weeks:

Date         DUUUU    nxt 4 week
08/01/32    0.519     0.226
04/24/33    0.319     0.182
08/30/82    0.180    -0.019
11/19/28    0.146    -0.006

Fiat bail-outs appear to work, once netted against world wealth gain. Ayn refuted?


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7 Comments so far

  1. jeremy on April 4, 2009 2:37 pm

    Does 0.519 to 0.226 mean up 51% DUUU, up 22% nxt 4 weeks 08/01/32.

    Bailouts appear to work, does that refer to 1932,1933 performance v 2009, implying that the rally has a high probability to continue, even in the face of a higher Shiller adjusted PE?

  2. Phillip Wirtz on April 4, 2009 4:56 pm

    Of course not. The market is made up of people. And people are shortsighted and imperfect. Their collective opinion sets the price. This means that while the market is quite good at discounting known information quickly, there exists much that the market does not know because it is also shortsighted and imperfect. However, as the facts begin to reveal themselves as to how damaging the stimulus will be to our society, market participants will react accordingly. In short, your post implies that the market understands the implications of the government actions taken. I submit that it does not.

  3. douglas roberts dimick on April 5, 2009 12:31 am

    Phillip, agreed — “it does not.” Your final observation should be well noted by all of us, as we are in uncharted waters, for the New Deal — even at it pinnacles — did not amass the (national and international [G-20]) scale of public-private collectives at both monetary and fiscal levels as presently being witnessed. dr

  4. jeremy on April 5, 2009 2:46 am

    After a certain sequence, for the next four weeks, the market tends on balance to vote up, that's very useful. I suspect the optimism genie will be reluctant to get back into his box because people like this feeling, it's preferable to the alternative, and denial is useful right now.

    Bailouts do work — eventually.

    Spring time gives a sense of optimism, but i suspect the next four weeks will be up to the end of April, then it will be very much sell in May and go away as the weight of reality bears down.

  5. kim on April 5, 2009 9:59 am

    Like the market itself, the post was a form of cynical humor. How can we know the market rallied for 4 weeks due to stimulus spending? Maybe the catalyst was signs of economic recovery, seller fatigue, short-covering, fear of missing the bottom, or some combination of these and a hundred other factors?

    About half the time the market does the opposite of what it is “supposed” to do; like up on 4/3 after dismal jobs report. Certainly rising unemployment is not bullish, so did they think Friday was the worst of it?

    The market is a confabulaboratory (a laboratory of confabulation). The rewards and punishments are such that the mind fills in causality when in fact it is unknowable. Even more dangerously, it irregularly gives enough hand outs to keep you at the table.

    http://en.wikipedia.org/wiki/Confabulation

    The analogy for men is when a pretty girl smiles: She may have any of a hundred reasons for smiling, but you can’t help thinking it was you.

  6. jeremy on April 5, 2009 1:19 pm

    Kim, do we really care about causality although that would be useful, i just want to predict they way the market is most likely to vote!

    Like wise if a pretty girl smiles at me, i don’t need to know why, i just need to respond positively, seize the moment, and see where it leads whilst having an objective and open mind.

    I think the signals the market is giving us are favourable, even if Shillers Adjusted PE will eventually come down on our heads.

  7. Craig Bowles on April 6, 2009 6:18 am

    Germany rallied 60% after taking similar actions in the 1920s and looked brilliant for a short time.

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