Apr

10

Previous posts have focused on signals that baseball players make before the pitch, and the efforts that teams make to hide their own signals and decode the enemies'.

I have often thought that there are hidden signals in markets. My favorite signal is silver, which I call the omniscient market in that whenever something is good or bad it seems to hit the silver market first. Recently, I have been discovering the hidden signals in the Dow Jones, which seems to go the 50 and 100's during the day, much more than randomness would suggest. Another hidden signal is the movement in bond prices that always seem to predate a major move in stocks. Another one is the Israel market, which I have found quite useful in predicting where the US markets will waft.

In particular the move in the Israel market on the Tuesday morning before the war in Lebanon started was or should have been quite helpful in predicting the war. I note that the Israeli market at 1004 is at an all time high. I predict a good first day of the new quarter based on this signal.

Rodger Bastien writes:

I have spent some time in the last day or two trying to discern whether there are predictive signals one can ascertain prior to a baseball game that might parallel what has been mentioned here, as one seeks an edge in determining how activity in one market may be a precursor to a particular move in another. I would compare this to the preparation that a hitter or pitcher goes through prior to a game studying previous starts by said pitcher or at bats for hitters.

There is a tremendous amount of film study these days due to the availability and the predictive nature of the human animal, that has been successful and will be repeated. Taken further, it's no secret that crafty veteran pitchers will often change their pitch patterns, recognizing that success is often found by throwing the unexpected pitch. The truly clever don't wait until their pattern has been revealed before they change the pattern. Just as a pattern of trading is seldom successful in perpetuity, so goes a pattern of pitching.

Much has been made of successful pitchers pitching "backwards," that is to say, throwing a breaking ball on a fastball count (2-0, 3-1 etc.) and a fastball on a breaking ball count (0-1, 0-2 for example). Though not your classic example of signaling, it is certainly a great example of the importance of preparation and varying patterns to confuse the adversary.

Alston Mabry writes:

"Stylometry" is the use of quantitative methods to determine the authorship of written works. Methods have varied over the centuries, but much attention has been paid to a writer's use of unusual words or word pairings. The problem is that unusual words and word pairings are easy to mimic, should one intentionally seek to create a forgery.

However, because of modern stylometry's reliance on computers, researchers can now analyze a writer's use of very common words and word patterns. It turns out that these common words and patterns are much more subtle, tend to be generated habitually and unconsciously, and are, therefore, much harder to fake or to hide.

One thinks at least of the relationship between what is highlighted in the media, and what occurs in markets.

From J.T. Holley:

For what it's worth one of my favorite card tricks involving an accomplice is utilizing any of the four tens. You lay out ten cards making sure that one and only one of the ten cards is a ten. When they are set up you have it look exactly like the ten as such:

5H              2S

3D      JH      10C

6C      5H      KS

4D              7C

You simply ask the person involved in the trick to pick a card while your accomplice has his back turned. When your accomplice turns back around you start asking him "is this the card," "is this the card." He'll keep saying "no" until you give the hidden signal with the ten card (ten of clubs in the above example layout). You always must lead with placing your finger on the exact card that the person participating has chosen. The real magic though is when the person participating chooses the ten! Then your accomplice can guess it right out of the gate with the first guess. It never ceases to amaze me that very few people figure this out.

The Mistress might be playing the very same card trick as Vic mentions above. The Israeli market being the card the market points to first, then leads to let you know where the magic returns are going to be. Or could she have the ten chosen being the silver market whereas it is the one to be in first and right out of the gate?

Oh well, magic has it's own set of signals.

Easan Katir adds:

One hidden signal (perhaps hidden only to me) I've researched is stock option volume or increased implied volatility predicting a move in the underlying. An anecdotal example was GM in February. 30 February puts were extremely overvalued and stock proceeded to go straight down from 37 to 30.

Hany Saad writes:

This is very enlightening. One wonders why Vic thinks the Tel Aviv market is leading or helps predicting the American mkts. Now, for what it is worth, the best trader I know operates out of Haifa and we correspond daily. His very rare recommendations are money in the bank.

Kovner had a theory that the Russian markets were the same and his theory was that they open our mail.


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