Jun

4

There has been entirely too little focus on the rhythms of the market, and I believe that a tick is like a note in music — that one should analyze the rhythm of the markets the way we analyze music. The time it takes the market to move from tick to tick corresponds to rhythm, and the time it takes for a level to change corresponds to whole white notes if long, or black notes if short.

The tempo of the market is how many ticks are covered in a given time period, with the time signature being how many ticks there are in each short period, four in a second for example. As for meter, that relates to changes in the levels, and whether they come in twos, threes, or fours, in an interval such as a minute.

One thing to note here is that musicians themselves find time an infinitely complex subject. The book Shaping Time by David Epstein has 600 pages of extensions on this topic. He summarizes:

"Could the Shakespearian intellect induce unanimity about a structural downbeat, a hyper-measure, a right tempo, a shaped phrase, a good performance. Time in music gives of its secrets grudgingly"

Previously I have discussed the rhythm of CNBC reports on which the Wildman, and various fundists and advisers with a special axe to grind, always try to get the public leaning the wrong way. I find the rhythm of bad news in a stock that's ready to go up a magnificent learning experience, reminiscent of the pool operations described in all my 19th Century books, such as Ten Years in Wall Street by Worthington Fowler, or Fifty Years in Wall Street by Henry Clews.

One should look at the time that it takes for prices to move to different levels, and one should look at how the volume of transactions relates to the changes in prices in different periods of the same duration. The whole subject of time taken to come back to various notes (or ticks) and groupings of same, is as infinitely complex a subject in the markets as Epstein documents it is in music. One has to crawl before walking here I think.

What brought all this to mind was the way on a three day week, with the Memorial Day holiday on Monday, the market made its new all time high. I have found the movements of markets around long weekends and those around shortened days, particularly hard to unravel.

I have started by looking at the moves the week before, the week of, and the week after the long weekend, counting from the last market day of each week. I found that during the last one and a half years that the weeks before the holidays were particularly bullish, the week after the holiday, bearish, and the week of the holiday neutral. The confidence intervals are such that the the divergent weeks have about a 90% change of being non-random.

We need far more studies and insights on the rhythms of the market.

Laurence Glazier writes:

This is a very interesting study and a good beginning to sketching out the metaphor. How inevitable a passage in music can feel in retrospect, and yet how hard to design and construct. An accelerando is like an increase in volatility, thus the Mistress Conductor speeds or slows the performance, stretching or compressing the charts, while keeping the note heads intact.


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