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8/10/2005
Victor Niederhoffer: Briefly Speaking

1. The DAX is at a four-year high at 4971, approaching the magic number of 5000, during a seasonal period where since 1994 there has not been a good summer rally since 1994. At this time the cumulative gain during the two months was about 5%. The average move since summer 1996 during these summer months is about -4% and the current change since June's month end is 2.5%.
2. A learned gentleman informs me that that he has read the paper Momentum Investing and the 52 week high by George and Huang and that he may update it with a current enumeration. The key variable the authors find indicative of superior returns is the proximity of the current price to the six month high. They show that portfolios based on this variable are slightly better than the standard banal momentum results found in the literature. The paper uses CRSP data from 1970-2001 and it certainly provides an opportunity... on the other side.
3. Regarding the idea that there is such a thing as a bull and bear market on a prospective basis: As indicated in our tests of the depiction of  market cycles formulated by my tennis partner Mr. L. B., there is no evidence that it is possible to come up with a retrospective depiction of turning points that is inconsistent with randomness. Thus, ideas regarding sluggishness, selectivity, increasing highs and lows must be taken as untested and unproven. Like so many good things, it is impossible to select the wheat from the chaff.

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