Jul

20

1. It is remarkable to note that for the S&P futures, there has been a complete symmetry in the number of big up and big down opens over the last 6 years. Using 1/2 % as the cut off, one finds that 340 have been big downs, and 345 have been big ups.          

Breaking it down by day of week, one finds that there is no day where the number of big ups diverges by more than 5 from the the number of big downs. Even more remarkable is that no day diverges from any other day by more than 15 in the total number of big ups or big downs. For example, on  Monday, there are 64 big downs, and 65 big ups. But of Friday, 70 big ups and 74 big downs.          

It used to be article of faith from efficient market types that news was generated randomly in time, like the number of horse kicks (v. Bortkiewicz 1898 ), i.e. a poisson process and that Mondays should have more bigs than the other days.

                 Big ups followed by big downs                                                

Mon 65 big ups, 64 big downs                                                     

Tue 69          73                                                              

Wed 68          61                                                            

Thur  73         68                                                            

Fri 70          74                                                                      

Even someone as prone to finding regularities in randomness as the signer, can't find any departures from randomness here. 

2. The concept of a bear market, i.e. a decline of 10% or 20% as an indicator of further bearishness is a hallmark of the charlatan. I think one recently saw millions of headlines to that effect of a bear market in commodities  (right before the 50% rise) but there has been a remarkable decline in Nikkei relative to the S&P, similar to other remarkable divergences notes in these humble speculums. [Note: Nikkei now 8670 vs 10185 on March 27, i.e. down about 15% vs S&P down only 3%].

3. There are many ephemeral things that move the market. One tends to shrug the shoulders and haul out some Shakespeare or Aesop on these occasions. "What fools these mortals be"  or "the ant and the grasshopper who played music for the day". But whether they are ephemeral or not in the market, they can have a lasting effect, and there is signaling to consider also.                                

To me, the  most ephemeral things in the market are the reaction to alcoa earnings, and the Philadelphia fed, and the various manufacturing surveys. All of these are random numbers based on a small sample representing 1/1000 th of the economy for one month even if they were not subject to so many sampling and seasonal errors.                                

Of course, 99% of the announcements are like this. However, they can have lasting effects as the meaningless monthly employment numbers show even though ofter an increase or decrease in the raw employment number of 900,000 or more can be converted to a 50,000 gain or loss through random and self interested adjustments.    

One is reminded of times I've tried to make a statement at a lecture before asking a question and in the middle a hundred agrarians from the audience shout out at me in disgust "what's your question".                      

In any case, what are the most ephemeral announcements and worthless things that move the market in your ken? And which ephemeral things tend to be reversed the most?                        

Okay. Are then any ephemera that have lasting effects?

Anatoly Veltman writes:

I can think of one that's puzzling: a Nikkei jump over night can create a follow the leader impression, which will trigger a wave of optimistic equity rises around the world. Is it ever considered that an oftentime .5% over night gain in the Nikkei is, in fact, unchanged in the neutral currency terms (by virtue of simply the Yen devalued .5% vis-a-vis the currency denominator of any other equity market)?


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5 Comments so far

  1. Nick Pribus on July 20, 2012 9:36 pm

    Bloomberg headline : “S & P 500 has first back to back weekly gain since June.” Can anyone with more advanced math skills comment on the statistical significance of this or has Bloomberg simply run out of ideas.

  2. Eric on July 22, 2012 11:41 am

    VIc and Laurel,

    I wanted to say I enjoy your site. Great writing and insight on many topics. At one time I was part of the “Spec List” when I was trading the markets. I left the industry to join the world of OIL and Private Equity in raising funds to drill domestic wells. I all but forgot about the great insights I once read on my email page. Now, I have come full circle and discovered this page. I have been reading it for a few months and pass your Site off to my clients. Most are private business owners, mainly manufactures. The love to Drill for Oil and they love reading your site. Keep up the good work!

    From “A damn Yankee” who has taken over Texas.

  3. admin on July 22, 2012 8:18 pm

    nick. it seems slitely bearish with a mere -0.2% expectation. but 50 -50 in dir. eric. good to see you so resilient . you sure know how to gain the weather gage. vic

  4. Nick Pribus on July 23, 2012 10:53 am

    My comment Bloomberg’s extraordinary headline “S & P 500 has first back to back weekly gain since June” was either facetious or sarcastic, but certainly not reverent of the masterful Bloomberg editors.

    Because one could have also written:

    On June 15- ““S & P 500 has first back to back weekly gain since April”

    and on April 27 - “S & P 500 has first back to back weekly gain since March”

    and on Feb 24 - “S & P 500 has first back to back weekly gain since January”

    and on Jan 13 - “S & P 500 has first back to back weekly gain since December”

    and on and on, my general feeling that back to back weekly gains are not such a rare phenomenon as to grab such a Bloomberg headline hence my question, have they simply run out of ideas?

    Do the headlines control the markets, or do the markets control the headlines? Which may also suppose that headline writers have any sense of the markets whatsoever.

  5. admin on July 23, 2012 6:25 pm

    yes. the headlines and stories from that publication are deeply flawed. Indeed, that’s how many things got their start including Daily spec and a very beloved and talented son. vic

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