Oct

26

On earnings: If you take SPY daily closes for earnings-reporting months (1,4,7,10) and compare with the non-earnings months (2,3,5,6,8,9,11,12), we see that for earnings months variance (F-test) is significantly higher:

F-Test Two-Sample for Variances         

             Variable 1        Variable 2

Mean      0.000664        0.000353

Variance 0.000141        0.000103

Obs          1153            2309

df             1152            2308

F        1.36085

P(F<=f) one-tail 4.17E-10

F Critical one-tail 1.086825

And even though return for days of earnings months are higher, the difference is N.S.:

T-Test: Two Sample Assuming Unequal Variances        

           Variable 1        Variable 2

Mean     0.000664        0.000353

Variance 0.000141        0.000103

Obs          1153            2309 

Hypothesized Mean Diff     0

df                              2017

t-Stat                  0.762086

P(T<=t) one-tail    0.223049

t Critical one-t       1.645609

P(T<=t) two-tail    0.446098

t Critical two-tail    1.961141

Thus earnings months are more volatile.

James Sogi adds:

The ES CME mini seems to have several modes of moving. One is the steady grind up on high volume a the buying just eats away at any selling with high volumes of bids and asks on both sides of the market, but at a slow steady pace. The odd thing is that the market grind sup through higher ask than bid. The other mode of movement is the airdrop such as this morning when all the bids seems to dry up and the market falls fast, not due to the ‘grinding action’ but more of a vacuum effect. This can happen even when the numbers at bid are higher than the asks. There is movement with up and down jittery price action and movement steadily in one direction. There is movement within quantum levels, and movement out of the levels which like boiling water takes more energy. The micro structural elements should be able to be quantified to signal at least descriptively what is taking place. Prediction is of course harder, but the precursor conditions ought to help prediction.

As to whether stocks fall faster than they rise, Vic and Laurel’s studies disprove that. The vacuum effect described above can happen to the upside and frequently sharp rises occur, as we have seen this past few months, with rises as fast as if not faster than drops. The rises are fueled by the short covering as well as the vacuum effect and can be even stronger. This rapid rise is what I call the ’swoosh’ effect. This also oddly happens when the ask volume is higher than the bids. As usual, its not what you would expect. Another issue is whether the vacuum drops and pops are connected ala Lobagola effects. It would make sense. George Zachar has said that volume is not predictive, and I agree, but something else is going on, and I intend to find out what it is and why it does what it does.

Steve Leslie replies:

Intuitively I understand the aspect of crowd behavior and a group think mentality. I have also read where analysts are slow to increase earnings estimates usually taking 9 months or more to actually catch up with the company. It is probably due to and it certainly is exacerbated by some companies not revealing all of their cards. They therefore give out parcels of information over time. It also may be due to lazy or fearful analysts who key their work off of others. They just mimic what every other analyst is saying. That way if they are wrong they can state the obvious, that everyone else was wrong therefore it was due to faulty information rather than their own ineptitute. . Blaming an uncooperative exec at the company for not disclosing pertinent information for them to do their job is often a proper copout.

I liken this phenomenon to elected officials who like to keep their jobs by not necessarily doing anything big but not making any big mistakes either. We based our decision to invade Iraq on faulty CIA intelligence.

Execs who make big mistakes can get fired quickly. There just isn’t much upside to being flashy when being average is just as financially rewarding.

On the other hand, how often do you see a stock get repriced overnight with a 30% haircut. Once again, fear may just be taking over. An money manager, hedgefundist, institutional investor, or similar professional may be saying well lets just step aside for now and see where the dust settles. There may be another shoe to drop and I don’t want to be around when that happens. So what is it to me to sell 1/2 of 1 % of my portfolio. To that end, they are being very reactionary and the insiders the market makers and specialists step back and let the stock fall. And they execute the stops on the way down.

It could also be a “gentleman’s” agreement on the part of the specialists and market makers to work in concert with other mkt makers to set the price and execute the outstanding tickets that may already be in the system. This way the “bookies” get rich and the public eats it. I suspect this is where the chair may fall in on. Just one more way to screw the investor for as we know most investors are long siders or “right way bettors” This way it can destroy the psyche of the individual make them easy prey for the predators and the scalpers (brokers included) and once more fulfill the prophecy of in the end the John Q. Public eats it. The publics time frame compresses and therefore they become the hunted rather than the hunter.

This is the stuff that runs through my mind and others are welcome to chime in. Or not.

As is one of my favorite lines from the movie “It is a fool who looks for logic in the chambers of the human heart.”


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