May

6

The all seeing eye could find many regularities, lessons, and things to test in the gyrations of the markets in the last week. Let's start with a descriptive one. What a fantastic 10 minutes of trading in the S&P futures from 3:55 to 4:05. It went down to 1507 looked like it would head back to 1502 where it started the week, then closed at 1514, a six year high, very close to the all time S&P index high of 1515. What a beautiful recap of the whole week in 10 minutes.

The main regularity that everyone misses is that the S&P been up 23 out of 26 days now, and this puts it in a completely different camp.

It is close to the all time high and it just broke the round number of 1500. I tried to give the numbers when it broke, but the regularity is clear in that a path that's goes up 75% of the time, steadily from 100 to 1500 with dividends constantly being taken out, is obviously a very good one. Normally there is a 75% likelihood that it will go up through a round number of 100 before falling through a round number of 100, given that the last 100 breakthrough was up also.

All the declines are clustered around a positive run of 1 breakthrough, or negative runs. After a positive run of 2 or more breakthroughs the conditional chances of a rise are say 85%, and after a positive run of 3 or more the conditional chances of a rise are say 90%.

Another regularity is the moves in the year following a positive run of 2 or more round number breakthroughs. Also, there is the likelihood of achieving an all time high when we are within 1% of the previous all time high. Another regularity is the likelihood of an up move after a big decline on the previous Monday. I could go on, but there are enough grists for the mill that I can stop.

The big mistake that people have made is the change in tactics that is usually necessary after a big decline . Nelson would say "forget about the maneuvers go right at them" and I would like to say that to all my people. It is hard to change horses and tempo though.

The whole rise stands on the shoulders of the February 27th move, and the fact that the bears had to make a disruptive, totally shocking move to try to keep down an incredibly bullish market. Whenever it looks the faintest like there is bearishness again, this is the time to go right at them, but it is hard to test that.

Another regularity is that all the papers are saying that the public has not believed this rally. That they are waiting for the pull back to occur, and that only eventually, if you do not get the pull back, will the market go up. This was confirmed, that "only 35% of the public is bullish this month." and after an up month this is completely unprecedented.

Another regularity is that the sports team owner effect was very helpful .A bunch of useful idiots, typified by the fake Dr., the ghost, and the seasonatarian (who strangely are invariably on the same side), use recurring patterns based on small numbers and infinite numbers of implicit hypotheses, to come up with their useless forecasts. Of course, no matter how wrong or ambiguous these bears' predictions are, they are always able to later interpret what they have said as correct, fooling those of us who do not keep close records.

In the fake Dr.'s case, he used the fact that over the last ten recessions the average duration was six years, and the inversion of the yield curve in 45 of eight times had a small correlation with economic change. In the ghost's thing, he used the fact that near the end of February, the sage usually tries to say something bearish in his annual report so that he seems like he is much more moral and ascetic than we are. Of course the ghost was wildly bullish at the time, in the heat, calling for all to root for the next fake key level of 1474, but then when the market went down, all of a  sudden the previous forecast he had been bearish.

Of course the non-falsifiable forecasts, "I was bearish but then bullish, and I mentioned a level, without regard to whether it was going to gap up from there or down from there" are ridiculous. It is amazing to see how easy it is to dupe people with non-falsifiable forecast like this. This is probably the main fault with modern predictions, and it is shameful when the progenitors like to boast about their success.

Another regularity was the way the weekly financial columnists, who has been consistently bearish for 40 years, including the last 10 months when he got back again after a hospitalization and the S&P has risen from 1250, finally said the previous week that the stock market rise had no reason or sense behind it and he did not know when it was going to end. But he was for sure that when it ended it would follow the same rapid path on the downside that it did on the upside, presumably going down to the Grossian Dow 5000.

It was amazing to see that the weekly columnist did not write last week. You would think he would be ashamed of the worst record in history, but indeed he was replaced by another weekly columnist who loves to say that the woes of the dollar are about to beset us, (if this is woe, give us more), and calls his column 'Bubble 2.1'.

A horse from the same stable is the sell in may and go away meme. That is as bad as the January barometer in its multiple comparison effect.

There are numerous other regularities, and I have received a stream of hateful emails from chronic pessimists, some of which I have alluded to above. One feels that there is a giant battle of the optimists versus the pessimists being played out, where the Grossian disciples are the big universities, and the expert is giving his tour — all in their last throes of desperation trying to maintain their facade of rectitude against the backdrop of their terrible harmful.

The counter that doesn't count, and the decision maker who doesn't look at the costs and benefits of decisions both have a message of anti-individualism that will cost institutions like the one that I went to, and its chief rival, the 30-130's and all their ilk, so many trillions in opportunity cost in the future.

As I am not totally bak to the hitting box yet, I will have to stop here, and not test all the meals for a lifetime written about above, as well as the many meals for a day that those willing to take out the pencil and paper could adduce.


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