The chart of the S&P 500 this week looked very much like what an uninformed member of the public would think a random walk looked like, but was actually a highly nonrandom pattern of repeated reversals, at least until late Friday afternoon.

The biggest move all week occurred when an easily predictable aftershock, that should by the theory have already been priced in, occurred in Japan.

Bruno Ombreux writes:

On monthly returns for sure.

I remember when I was a MBA student in finance class the teacher wanted to show us that the market was random. He displayed a chart of the real DJIA side by side with a chart of a random walk, then asked the class to pick the real stock market. 150 people choose the random walk and 2 of us, that includes me, picked the real stock market.

By the way, you need balls to go 2 against 150 in an MBA classroom.

I think there are other things at play here. 150 people getting wrong get be attributed to the guys being lemmings, and 2 right guys can be attributed to us knowing the chart in advance (we were among a few with previous trading experience).


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