Oct

2

One of the virtues of a market near its all time highs is that one can read Heard on the Street again to see why the always negative columnist is bearish again this time. It seems that investors are being choosy (breadth is not above ninety percent, and many stocks are below their high), the housing market is down (and it is not at the bottom yet), the Democrats might make gains, earnings comparisons could be down, and there is a general feeling of unease. He could only find two gimlet and acerbic observers, to quote from who share his bearish views.

While all of his reasons for bearishness, if tested, would probably be quite bullish, (there is a negative predictive correlation between real estate stock prices and general market prices three months later), and there is no correlation between earnings changes and coterminous stock price moves, but a high one between interest rate changes and stock price moves, I am admittedly quite uncertain also.

The market is near new highs, having beat the highs, intra-day but failed to close above twice. I believe that double tops and triple tops are bullish in the small and the large but have found this difficult to test. The funny thing is that the market is more bullish when canes are appropriate than when it is most fun to ridicule Alan Abelson and wonder when the last short selling fund is going under. And buying after new highs is not a overly winning proposition. But somehow the market does go up its inexorable ten percent a year, and it has to do this with new highs. Last October was down, and that is bullish, and the fourth quarter is bullish, especially with this degree of divergence between interest rates and earnings. A totally trepidatious time, when the probabilities are near 0.5 but the expectations are old faithfulesque.

I have been reading both Price Theory by Steven Landsburg, a technical book with analytical principles and ways of thinking that illuminate the structure of competition and industry, and The Illustrated Guide to Ecology by Stephen Case. Both books are a constant source of new ideas and better foundations for me in thinking about the markets. I will elaborate further on both soon

In my Quixotic quest to find empirical regularities that relate to The Little Book of Scientific Principles, Theories and Things, I have been considering the Pythagorean theorem and its market insightful regularities. I have been thinking of the relations between numbers, like 3,4,5, and 5,12,13, and also thinking about the simple proofs that divide up the horizontal lines into two overlapping triangles and its applicability. Finally, to the squares of variances as they relate to the variances of other markets. I am open to testable suggestions.


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