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23-Oct-2006
Some Null Hypotheses, by Victor Niederhoffer

1. Future market moves in the S&P are independent of the relative size of past moves in the S&P, Dow, and Nasdaq. Thus, a rise led mainly by largecaps, such as that decried by Alan Abelson in his current bearish column, is not more or less bullish than one led by the Nasdaq. A less restrictive null is that the relative ranking of the three aforementioned is not predictive of future moves.
2. Last Friday was one of those typical diabolical days. The S&P futures ended up a half point on the day, and a quarter point from open to close. Thus, all those who like to reverse the previous move will be short as soon as they can borrow funds from their others. But the market knows this, and reversals -- or mean reversion, as some experts like to call it -- don’t figure in such situations.
3. The Jonestown 909 went quietly to their deaths, led by the charismatic Pentecostal preacher from Indiana, who gained stature from frequent visits by Democratic presidential candidates who had the same message of "from each according to his ability, to each according to his need" as the preacher. Similar orderliness is shown by the hundreds of thousands of bears, led by their preachers, who gain stature from the shrewd and savvy friends who share their views that the economy is going to be much worse than anticipated.
4. I was on the tennis court with a hoodoo today for three minutes, and we spoke. The last time we did so, we played for an hour, and he told me his wife was going to Beirut for a vacation with the kids the next day, and the war broke out three days later -- so I hypothesize that the market will have a major move against me in the very near future, but one that will only be 3/60 as severe as the previous beating he exposed me to.
5. Markets tend to reverse the corresponding monthly moves from last year in the last half of the year, but tend to follow the corresponding monthly moves from the previous year in the first six months of the year.
6. Stocks that show great rises in price with low profit margins will display lower performance in the next periods than stocks that show great rises in price with high profit margins.
7. The mistress of the market will remember all the easy ways she made money for the higher feeders in the market chain in the previous year, and will tend to repeat that method much more often in the future than would have been the case without it. Take the nice rise in vol in spring 2006 in conjunction with the staged speeches of Fed governors proclaiming their vigilance about inflation, in conjunction with earnings woes for the second quarter.

Russell Sears observes:

Regarding the first hypothesis...

Are moves in the Dow relative to S&P a leading indicator of Euro to $?

While my weak stats could not decide the best route to interpret this chart. But know enough to know these ratio, and timing things often seem plausible but are totally spurious. Also my lack of a personal trading venue for exchanges, left little motive, to persue much credibility to give this chart.

But a normalized (ratio starting at 1) chart of Dow to S&P since 1999 seems closely related to a normalized Euro to $, 1.5 years latter. The size and duration seem to match closely. Which would imply the Euro will fall some more but slowly over the next 1.5 years.