Feb

28

Gold at $5,000 is not a rally. It’s a verdict.

These prices are not expressions of optimism about growth or productivity; they are expressions of doubt about currencies, governments, and institutions charged with preserving economic stability.

Feb

26

I was not familiar with John Michell (1724–1793) until I read that he did a statistical analysis to show that double stars seen in the night sky were far too numerous to exist by chance and thus must be actual binary star systems. He also essentially posited black holes - in the 18th century!

John Michell

Michell was the first person to apply the new mathematics of statistics to the study of the stars, and demonstrated in a 1767 paper that many more stars occur in pairs or groups than a perfectly random distribution could account for. He focused his investigation on the Pleiades cluster, and calculated that the likelihood of finding such a close grouping of stars was about one in half a million. He concluded that the stars in these double or multiple star systems might be drawn to one another by gravitational pull, thus providing the first evidence for the existence of binary stars and star clusters. His work on double stars may have influenced his friend William Herschel's research on the same topic.

Feb

23

On Growth and Form, by D'Arcy Thompson

The quest of physical causes merges with another great Aristotelian theme—the search for relations between things apparently disconnected, and for ‘similitude in things to common view unlike’. Newton did not show the cause of the apple falling, but he showed a similitude between the apple and the stars. By doing so he turned old facts into new knowledge; and was well content if he could bring diverse phenomena under ‘two or three Principles of Motion’.

The author's goal was to show organic forms exist in conformity with physical and mathematical laws. This was Chair Victor Niederhoffer's genius: to take similitudes from trees, surfing, checkers and give mathematical form to the chaos of the markets. The search for causes is in vain. Quantifying a relationship can provide meals for a lifetime.

All we can do meanwhile is to analyse, bit by bit, those parts of the whole to which the ordinary laws of the physical forces more or less obviously and clearly and indubitably apply. But even the ordinary laws of the physical forces are by no means simple and plain. In the winding up of a clock (so Kelvin once said), and in the properties of matter which it involves, there is enough and more than enough of mystery for our limited understanding: ‘a watchspring is much farther beyond our understanding than a gaseous nebula.’ We learn and learn, but never know all, about the smallest, humblest thing.

This famous quote is by the astronomer Johannes Kepler:

Plurimum amo analogias, fidelissimos meos magistros, omnium Naturae arcanorum conscios

Here is the translation from Latin to English:

I love analogies most of all, my most faithful teachers, acquainted with all the secrets of Nature.

Feb

18

More on the points vs % argument. % vol or Vix is misleading and inaccurate measurement of vol. A better measure is abs vol in points/$ because we live and measure ultimately in dollars.

Accordingly at 7000 abs vol is 350% of what is was a few years ago at 2000. Trading has to adjust accordingly to maintain the same portfolio volatility of returns. Thus leverage, targets, systems, time have to adjust to match.

Adam Grimes disagrees:

because we live and measure ultimately in dollars

This does not strike me as coherent. Returns are the only reasonable way to understand market movements. Just imagine a portfolio of two assets, one at $1 and the other at $100,000 (or other arbitrarily wide handles). The only way to think about those is to normalize for price via %, so it follows that volatility would be equally incoherent measured in points. (Sorry for the Finance 001 example, but I think 'Explain It Like I'm Five Years Old' cuts through a lot of confusion.)

% and vol measured as vol of %'s (i.e., returns) is the only thing that makes actual sense here unless I'm misunderstanding the argument. What am I missing?

Accordingly at 7000 abs vol is 350% of what is was a few years ago at 2000.

Scratching my head here. "So what?" and "of course" are the only things I could manage to say here.
I'm probably missing something, though. What is it? (btw VIX sucks as much as any other clunky measurement of implied vol. I'll agree with you on that one, but I don't think that's your point.)

Zubin Al Genubi responds:

1 ES contract used to move 7 points as an average range 20 years ago. You made or lost $350. 1 contract now moves 50 or 100 points a day, same percentage, but your account is up or down $5000. The volatility in your account in dollars is higher than 20 years ago. If you lost 1% in 2000, its $600, but 1% now is $3500 per contact. You don't see too many 2% days like before. Abs vol is up while Vix or % vol is down. Its apples and oranges.

The trading style, research should change. Straight percentages for expectations, returns, targets don't work like they used to, especially using historical data. Silver now has micro contract because $5000 a dollar too is high volatility in dollars with $20 or more ranges. I guess I'm suggesting using abs vol as a better measure of vol.

Appropriate here, Feynman in 6 Not so easy pieces, cites Wyle on symmetry, "Suppose we build a certain piece of apparatus, and then build another apparatus five times bigger in every part, will it work exactly the same way? The answer is, in this case, no!" My point is the market does not the same way as it did 25 years ago in large part because it is bigger. The fact that the laws of physics are not unchanged under a change of scale was discovered by Galileo. He realized that the strengths of materials were not in exactly the right proportion to their sizes. [Ibid]

Adam Grimes writes:

I'm sorry, but I still find these points trivially obvious. Of course nominal price swings are bigger because price levels are higher, so of course holding a single contract would result in larger dollar swings. Who's holding a single contract? Position size takes care of all of this.

And I don't think the physical analogs add anything beyond confusion. Physical properties scale differently. For instance volume scales as cube and surface area as square. This is why we could not have a science fiction 100 ft tall lobster in reality…because of material constraints. There's no market analog to this. A 1% move is a 1% move. There's no hidden non linearity there.

If your claim is that markets don't move the same they did 25 years ago I would challenge that claim. What's the evidence for this? Statistically there's always the issue of non-stationarity but it seems to me you're claiming there's something more meaningful here. What am I missing?

Asindu Drileba comments:

I think Zubin is simply trying to say that he had found measuring volume in dollar terms (absolute terms) more relevant than measuring it in percentage terms.

Richard Hamming has an interesting talk, You get what you measure

Here us a good summary:

You may think that the title means if you measure accurately you will get an accurate measurement, and if not then not; it refers to a much more subtle thing - the way you choose to measure things controls to a large extent what happens. I repeat the story Eddington told about the fisherman who went fishing with a net. They examined the size of the fish they caught and concluded there was a minimum size to the fish in the sea. The instrument you use clearly affects what you see.

I for example, completely stopped measuring market returns in percentage terms a few years ago. I now exclusively use log returns. Why did I stop using percentages? The problem with percentages is that they are not equal to each other (ignoring the negative sign). (a 50% move) + ( a -50% move ) does not give you 0 in dollar terms. But what you get is 0% in percentage terms. Percentages are not symmetrical. Does this mean they don't measure growth? They actually do. But they simply should not be compared. As the absolute values may mean something different.

- A 0% return percentage may (erroneously)
indicate that you have broken even.

- The same 0% percent return may also show that you are actually loosing money in absolute (dollar) terms

Adam Grimes writes:

Of course log returns are well known, and this is more finance 101. There are several qualities that make them more attractive for some analyses. (just dont mix percents and log returns!)

But that's not the same as measuring market movements in raw dollars (which is the only reasonable companion to volatility measured in absolute dollars (or points).

And as for measuring what you see, methodology (and perhaps even experimenter expectations) greatly affecting outcomes and conclusions, we're on the same page there. This is fascinating territory for discussion and I'd welcome it.

But his point about volatility only extends to someone trading a single contract in 2001 and also trading a single contract today. That is irrelevant.

If there's something at work here and legitimately some way the market "doesn't move the same way" it did decades ago… I'm all ears and very interested. Always looking to learn more about what I don't know or might be missing.

Zubin Al Genubi does some counting:

There were 31 days in 2006 and 67 days in the last year with percent moves >1%. This is due to Big Tech being 32% of ES with higher beta and the speed and intraday persistence of algorithmic trading. Lastly, it 'feels' different. A 120 point drop trades different than a 13 point drop in 2002.

Stated quantitatively, now nearly half of our trading days have abs vol hi-lo >1% while in 2006 only a quarter of days had abs vol >1%. That is a big difference and clearly explains why trading is different (better) now. Today is just 1 of the many such days.

Cagdas Tuna adds:

All futures contracts of index products have adjusted to gross notional value of underlying stocks. At the same time VIX contract specifications and notional value it can represent almost remain unchanged. Although calculation method of VIX is the same, the number of futures contracts hedgers need to cover notional values they trade in underlying assets are totally different.

Adam Grimes writes:

Stated quantitatively, now nearly half of our trading days have abs vol hi-lo >1% while in 2006 only a quarter of days had abs vol >1%.

I'm sorry but I have to be direct. I find this annoying. You have moved the goalposts and are now making a completely different argument. You began advocating for measuring volatility in absolute dollars and now you are using a percentage measure. You are literally using the metric you said was wrong to support your argument that the metric is wrong.

Furthermore, your data are bad. It's simply a volatile measure. Volatility is volatile. Here's a look at the FULL history of the ES futures [first chart] (back-adjusted so this may not be fully accurate, but I think the % adjustment fixes the back-adjustment distortion) counting the number of trading days in each calendar year that had abs(high-low) / close > 1%. It's simply an unstable measure and I don't know what is to be drawn from this.

If your argument is that there are more days with "surprise" distortions, this is maybe nominally true, but better measured with better tools. I use a tool that expresses each day in terms of the mean average absolute closing difference [second chart]. Taking an arbitrary bound of 3 for that, the argument that this year is on track to show more surprise shocks than usual is true (but also reflective of a generally lower baseline).

You've flipped to percentage measures and we're left with hand waving "it feels different now." That's a different claim and it's qualitative, perhaps has value, but not in supporting your original claim.

I'll reiterate my position: percentage measures are the only thing that make sense. Point values are arbitrary and can be easily handled via position sizing (within the limits of granularity of instruments vs account size.) I don't think this is revolutionary or controversial. This is truly finance 101.

Feb

15

I counted the number of crossings of the ES future past 6950. I counted the using the nearest expiry future. I counted using 30 min increments. Since October 29, 2025:

ES crossed from close to close across 6950, 78 times. 39 times up, 39 times down - true Logbola.

ES traded through and touched 6950 at any time at least 154 times (counted when there was low < 6950 < high).

Curious if any specs have used data like this to predict future prices.

Zubin Al writes:

14 hourly crosses night and open [Friday, 13 Feb.].

Cagdas Tuna comments:

I find the fact that whether call it NY Fed or Blackrock or other main street banks whoever single handedly controls and manage to keep VIX below 20 that is ultimate power controls the US stock market.

Larry Williams responds:

No one is holding anything down—or up—my vix fix is essentially same as $vix it cannot be controlled.

Cagdas Tuna is skeptical:

Yes, nothing is controlled!

Zubin Al Genubi prefers market dynamics:

Vix suppression is caused by: 1) heavy ODTE trade, while VIX is calculated on options 23-37 days out; 2) dispersion in SP index (dispersion meaning Mag 7 vs other 493; see RTY almost up 2%); 3) Big fund/ETF imbalances balancing deltas; 4) mean reversion of VIX/and buy the dip, which can break down at some point.

Larry Williams gets cosmic:

The universe is always expanding, Hawking proved. Stocks are part of that.

Feb

11

New Fed Chair Not So Bearish

…we present the S&P 500’s performance following a change in leadership at the Fed. Historically, performance is not all that bearish. Aside from the 3 months later interval, all other interval’s frequency of advance (% Higher) are above our standard 60% bullish threshold and average performance is positive.

Going one additional step, let’s say Eugene Meyer was not responsible for the Great Depression and Alan Greenspan probably did not cause the market’s crash in 1987. Bad timing, perhaps? Removing them from the data essentially removes the most bearish data. Average performance across all intervals goes up and is positive while frequency of gains also improves noticeably and performance 1-year later jumps to an average gain of 12.7%, with the S&P 500 higher 90% of the time.

Feb

10

We should never get stopped out of a trade just because we have lost money. We exit trades if we no longer like them—losing money, while deeply unpleasant, should never be the sole criterion for exiting.

Peter Penha responds:

The last stop I left was a stop loss in Platinum futures sub $800 and the market took the contract down $65 and stopped me out, made one lower print $5 below me, and then came back up. Probably was the low print post March 2020.

I have had horrific experience with Schwab/thinkorswim…they once sold me out (partially) of calls on Sugar that were deep in the money at a make believe bid price way off market and below intrinsic value. When I challenged them noting that equity markets were open and they could easily have raised cash in many liquid ways - they told me they reserve the right to do what they want. I have multiple snapshots of them marking positions below intrinsic value, and lately while I was long silver futures they would mark my long Sugar contract to zero (I would see a negative futures cash position equivalent to the notional value of my long position).

I have been thinking of Marty Zweig and how he did very well leaving trailing stops on individual stocks and need to find my copy and revisit Winning on Wall Street and see how he did it (successfully).

Rich Bubb writes:

I AI'd trailing stops info thru Gemini.

The rule-of-thumb I currently/usually use is 8%-15% TSL% (trailing stop loss %). And typically use a lower-is-better TSL%. The volatility and economic tea leaves divination determine the TSL%. If I have less conviction in a position, I'll reduce TSL% to (sometimes) let the Market tell me how wrong I initially was.

And I got burned at the start of Great Recession, where I had TSL%s way-too relaxed; upper teens TSL%. The TSL%s all worked, but by then I'd lost about 15%+. Painful lesson.

Feb

8

Expect Equity Markets to Broaden in 2026, Led by Small Caps, International

Both fiscal and monetary stimulus should boost earnings in the U.S. and abroad, with dollar weakness continuing to underpin international stocks.

Nils Poertner comments:

Back in High School, they gave a 1 pager of Latin and we had 1 hour to translate it (since it is an ancient language I was spending a lot of time to see what this all meant.) We all know English more or less. These days, I read a 1 pager in English (like this page) in 1 minute. My modern brain actually agrees with the whole article. Yummy. In reality there are probably a lot of cliches in it….

Zubin Al Genubi writes:

AI is about training data otherwise it gets stale and cliched. Like a person reading the same newspaper every day. Google has lots of data. Musk is merging SpaceX with AI because as internet provider he will have access to unlimited global data. I wonder what their contract disclosures say about data privacy.

Steve Ellison responds:

"Expect"? I have seen the broadening occurring since November. There was an extended non-confirmation of Dow Theory last summer into fall as the Industrials were making new highs, but the Transports remained below their November 2024 high. Not only did the Transports finally make an all time high, now they are making new highs before the Industrials do. Similarly, the equal-weighted S&P 500 ETF RSP, which was badly lagging the cap-weighted SPY in the 2025 rally off the "Liberation Day" tariff lows, made a new high yesterday while the cap-weighted index only partially regained some of its losses from earlier in the week.

I said on X [6 Feb.], "Lots of strength in the broader market. While technology stocks were selling off the last few days, the Industrial, Materials, Consumer Staples, and Energy sector ETFs all made new highs".

Feb

7

Veritasium: Filming Electrons at 1 Quadrillion FPS

Explore slow motion like never before, from century-old strobe techniques to a quadrillion FPS camera. Witness light's journey through objects and the movement of electrons within molecules. Discover how scientists use sound and incredibly short laser pulses to capture these breathtaking moments.

Feb

5

The last few down swings each had 6 new lows before a bottom. Today, marking a new low for this swing after hours will end up a new low number 5 by the end of tomorrow.

Steve Ellison writes:

Interesting. I have been experimenting with multi-level point and figure charts. Using a box size of 1.4% (a long-term average true daily range) and a 3-box reversal, SPY is still within 4.2% of its all-time high and hence in an uptrend. Drill down with smaller box sizes and shorter time intervals, and interesting price structures appear. At a 1/4 ATR box size, today's close was at a similar level to the Jan. 20 low.

Lots of sector rotation under the surface. If 2025 was the year of the magnificent 7 and the flatlining 493, this year may be the opposite. While technology was getting beaten down this week, the Industrial, Materials, Consumer Staples, and Energy sector ETFs all made new highs.

Zubin Al Genubi adds:

Lots of late night shenanigans going on. Asian markets trading open in late thin US futures creating imbalances. Price action appears algo driven.

Nils Poertner comments:

I like the pattern with 6 new lows. Well spotted. Otoh, if the pattern does not repeat the surprise for mkts is bigger. nature offers "patterns" and "break of patterns" and both are relevant - else it would be a museum.

Cagdas Tuna predicts:

Then it is going to be a rough year for market cap weighted indices in US.

Peter Ringel writes:

While I would always give a study, like Big Al‘s more weight to remove opinion. I wonder, if there is a January effect regarding regime type or sector or general trading type. Not necessary % performance. Will the rest if the year trade like January? Would give a 2015 type year.

Nils Poertner responds:

yes. for practical purpose, it may be easier to trade mkts which receive less attention by the wider financial community /media.

Feb

5

Liv Boree, poker pro, interviews Deep Mind guy:

Why Google Made ChatGPT, Gemini & Claude Play 900,000 hands of Poker…

Liv Boree

…before going on to earn a First Class Honours degree in Physics with Astrophysics at the University of Manchester. During this time she played lead guitar in heavy metal bands Dissonance and Nemhaim and modelled for a number of alternative clothing brands such as Alchemy Gothic.

Victor Niederhoffer comments:

especially if you live in denmark

Feb

4

Yale Hirsch and his son Jeff have shown that a positive change, from the last trading day of the year to the 5th trading day of the new year, portends a bullish year (positive first 5-day percent change).*

Consider this … in the last 76 years of trading, the S&P 500 has declined for the year 20 times or 26% of the time. In other words, 74% of the time, there has been a yearly gain.

Jeff’s numbers show that in those last 76 years, 49 years showed a positive first 5-day percent change. Only 8 of those years went on to close down for the year. That’s an 84% bias for the year to close higher when we have a positive first 5-day percent change.

My add-on to Yale’s and Jeff’s work was to look at the years that gained 1.2% or more in the first 5 days of trading. There were 28 such years. Of those years, only 2 were down for the year. That’s a 93% bias for the year to close higher. What an improvement from the average 74%!

In 2026, the first 5-day** change for the Dow Jones 30 was +3%.

In 2026, the first 5-day** change for the S&P 500 was +1.6%.

Those 28 years had an average annual return of 14%. The remaining years had an annual gain of 5.3%. I see this as excellent confirmation of the bullishness of my Forecast 2026 Report.

Cagdas Tuna writes:

There is no need for a statistical analysis to assume any given year will be positive for US indices. It is almost guaranteed to be positive every year. No offense to any list member.

Larry Williams responds:

Wrong 24% of time we close down for the year.

Michael Brush is surprised:

Wow did not know it was that high.

Larry Williams agrees:

I was taken back by it as well.

Asindu Drileba asks:

2026 is bullish? But Senator, you said you expect a recession in 2026 with 100% certainty. Is this a contradiction? Or maybe its possible for the market to be bullish even during a recession?

Larry Williams answers:

Yes, there was a projection made a year ago for a 2026 sell off —in the last 12 months data changed—large improvements in fundamentals and hopefully I got a little better understanding of long term cycles. New Data matters.

Nils Poertner writes:

Asindu- there would be simply too many variables out to make that statement with such a certainty in advance. Just impossible. It remains a probability game. Used to subscribe to some cycle research that claimed to have things figured out yrs in advance. quite pricey subscription. it was HOOK, LINE and SINKER (for me).

Denise Shull comments:

New Data matters.

Indeed it does. Wonder why it’s challenging for many to incorporate?

Nils Poertner responds:

Good question. On this note… (Pure) data analysts believe pattern matching on large datasets will solve our problems. But what if the really vital information isn't being collected? What if it's invisible to our trained systems?

Feb

3

The Autobiography of Mark Twain contains a litany of people who cheated him and losses on his investments near the end of his life.

Nothing ever happened to Mark Twain in a small way. His adventures were invariably fraught with drama. Success and failure for him were equally spectacular. And so he roared down the years, feuding with publishers, being a sucker for inventors, always learning wisdom at the point of ruin, and always relishing the absurd spectacle of humankind, which he regarded with a blend of vitriol and affection.

Vic's X/twitter feed

Feb

2

For decades, US dollar dominance rested on a simple but profound foundation. Predictable institutions made the dollar stable, on the belief — sometimes overstated — that the United States would not deliberately undermine its own currency. That belief is now visibly eroding.

The dollar has fallen to its weakest level in nearly four years, not because of a recession or crisis at home, but because investors are increasingly uneasy about the direction of American policy. Against a basket of other currencies, the US dollar is approaching the lows seen during the COVID pandemic as markets are beginning to price in something more corrosive than cyclical weakness. Political and institutional risk is emanating from Washington itself.

Dollar Weakens as Markets Reprice US Political Risk

Feb

1

In this quick study the answer is no.

Jeffrey Hirsch has a different take:

From my newsletter issue published last night:

January Barometer Rules

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