Market Tech Share Discussion Threads

[errol6429] 23/2/2003 19:18

Comments?


Conclusions
1. The pattern since 27 January is an IRREGULAR FAILURE. It is a typical wave two in a BEAR MARKET. Nothing in the pattern suggests bullishness. The strength seen last week is due to the wave two-consolidation pattern. Wave two completions generally have strong bullish sentiment and often give signals of continuing bullishness. For a wave three to have a strong downward drive, it requires that many traders to be on the wrong side at wave two completions. You cannot have a strong third wave down without long liquidation.

2. The up move of the lat two days from 806.39 is the "C" wave of the of the IRREGULAR FAILURE pattern. In a number of related markets there is wave fourth wave infringements into wave one in this wave, creating a WAVE THREE EXTENSION TERMINAL. This is a BEARISH.

3. For the market to reverse, the S&P has to climb above the Powell U.N. session bifurcation. That would create an internally inconsistent IRREGULAR FLAT. It is a pattern of confusion. To overcome short-term bearishness, the S&P would then have to climb beyond the 61.8% of the fall from January 16. That would remove the immediate BEARISHNESS but not the major bear market. It may result in a more complex
correction. After establish a substantial base and breaking upwards there would be a possibility of a new BULL phase. At this stage, this is assumption is premature.

4. It is likely that "C" wave completed on Friday with a fifth wave failure at 80.9% of wave one – a less common PHI relationship that is more common in TRIANGLES.

5. The conclusion is that the S&P will sell off on Monday from open. If it does, it will be with increasing momentum. There is a less likely possibility that on open it will raise to 857, where the fifth wave equals wave one, and then sell off. Price acceptance above 857 will suggests that the short-term view is wrong.

6. If the interpretation is correct, the next down move is the most volatile of Elliott patterns. In this stage of Elliott is where panic moves are apt to occur.

[energyi] 23/2/2003 15:49

DOES SORNETTE SEE A RALLY FROM HERE?

His latest forecast:
Fig. 2 shows the new predictions of the future of the US S&P 500 index using all the data from Aug.9,2000 to Feb.19,2003, illustrated by (continuous and dashed) black lines



"...The continuous line is the fit and its extrapolation using the super-exponential power-law log-periodic function derived from the first order Landau expansion of the logarithm of the price, while the dashed line is the fit and its extrapolation by including in the function a second log-periodic harmonic.

We also present the two previous fits (red lines) performed on Aug.24,2002 (shown in Fig. 1) for comparison, so as to provide an estimation of the sensitivity of the prediction and of its robustness as the price evolves. The blue dots show the daily price evolution from Aug.9,2000 to Feb.19,2003."

[energyi] 23/2/2003 15:45

Why Stock Markets Crash - Didier Sornette

Posted on WSBear, By: arthurcutten ... Date: 2/22/2003 at 11:08:30

In Response To: Defining terms. (arthurcutten)

I am currently reading "Why Stock Markets Crash" by Didier Sornette.

It is a very interesting work, because Sornette is a geophysicist with a strong background in complex systems.

This is the other great crosscurrent in economics in addition to the 'behaviourist school' of the Robert Shillers. Sornette represents the application of the knowledge from other branches of science, through mathematics, into things like economics.

In the past this did not work out, and there were some spectacular failures in attempting to model something as complex as the economy with models that, despite their complexity, were basically linear.

With the work being done in chaotic systems and fractals, the application to economics is enormous in its potential. I am hoping to steer my son into this area if he has a mind to it. If I were his age, its what I would pick if I had had a choice.

Don't let the math scare you away. You can skip most of it. Some of his thoughts are hard for me to really grasp, but Sornette's work is very eye opening, although probably not tradeable next week

[energyi] 23/2/2003 15:44

I do my own work. And use some indicators for others in creative ways. I think we may be ready for a plunge. The current set-up looks much like mid-June 2002 to me:


The next few days critical. We could repeat June/July 2002 collapse

...
But watch out today: Short Term rally is possible. I want to see it fail below 850.

This chart also suggests SPX could be ready for HARD DOWN move:

[energyi] 05/2/2003 15:07

FRACTAL DIMENSIONS....
The BATTLE Between Trend and Congestion

(Shezz. on the USA Traders pointed me to this)

February 5, 2003 ... Congested and Ready (to Fall)
by David Nichols

Over the last week the markets have have been wildly zig-zagging up and down. It's been a case of a lot of movement, without any actual progress.

Chart#1


But it's really not so surprising if you're attuned to the way the markets really work, as chaotic, dynamic organisms. The reason the market hasn't done much of anything over the last week is that there wasn't enough energy built up to go anywhere. There was such a quick, exhaustive move down that the markets needed to pause and congest, to re-charge the potential energy.

To demonstrate this, I'll give you a rare look at one of my "secret" tools --
my measurement of the fractal dimension of the market.
Every time I mention this -- and it's not that often -- I get lots of e-mails asking me to elaborate, but for now I'm going to keep a little mystery around this. Part of its value to me is that not many people even know what it is, much less how to use it and interpret it. You never want too many people looking at the same things you do.

I look closely at the fractal dimension of the market to tell me whether the market has enough energy to start a real trend. It also tells me when a trend is fully exhausted. This is really, really good information to have.

For example, I wasn't too keen on chasing trades last week -- during what turned out to be a lot of back and forth movement -- because the fractal measurements were saying clearly that this was a major congestion period, and definitely not a time when the market was set up to make a trendy move. I like to avoid trading congestion periods, as it can be very rough on your nerves, and your trading capital.

Let's take a look at how all this looks on the OEX. I use a 150 minute chart, because after lots of experimentation I've found this to be the time-frame that is best-suited for capturing the moves I'm looking to get in our options service.

Chart#2


When the fractal dimension is high, the markets are congested -- and fully ready and capable of starting a big trendy move. Once a trending move starts, such as the recent downtrend, the fractal dimension starts to reflect the linearity of the trend. The really interesting thing is that the markets can only get so linear, before they have to back off and congest -- which then pushes the fractal dimension back up. It's a constant back and forth between trend and congestion, and it really helps to know where you are in this market continuum.

So it's really pretty simple: After this last streak down, the markets needed to pause. But now we're back in the fully congested zone where really good trends are spawned.

With the markets in a short-term, mid-term, and long-term decline -- the odds strongly favor that the move out of this congestion zone will be a break to the downside

[energyi] 21/1/2003 14:30

PREDICTING THE FUTURE....
A UCLA physicist named Didier Sornette has recently published a book in which he claims to find patterns in stock market crashes. He has bad news:

"The U.S. stock market is not yet on the verge of recovery," Sornette said. "The bear market that started in July-August 2000 still has a long way to go."

Sornette and [Wei-Xing] Zhou predict the Standard & Poor's 500 (currently above 900) will begin dropping by the second quarter of 2003 and will fall to approximately 700 in the first half of 2004.

Now, I don't know whether Sornette's algorithms really work or not - most models of this nature work great right up until the next recession - and I can't help but be suspicious since he claims not to have invested any of his very own money using his system. But what intrigued me most was this quote:

"Scientists typically do not predict the future, but I'm optimistic. Complex-systems theory is a young science, and the predictions will undoubtedly improve over the next five years. We are not able to predict stock markets with anything close to 100 percent accuracy, but I have confidence in the predictions, and confidence that they will become more accurate as we refine our methods."

In fact, that's exactly what scientists do: predict the future. The whole point of the enterprise is to create models of physical phenomena that accurately predict what will happen under a given set of circumstances.

The scientific status of economics has always been shaky, despite the fact that for the past century it has been heavily mathematical in nature. The problem is that whereas Newton's theory of gravity predicts the path of a cannonball with multiple digit precision, most economic theories are deemed successful if they get within a factor of two.

The reason, as Eugene Wigner famously pointed out, is the unreasonable effectiveness of mathematics in the natural sciences. Nobody knows why this is so, nor why it appears not to be the case for any other realm of knowledge. If only the social sciences were as simple and mathematically inclined as the natural sciences, then Sornette might be on to something. Until then, put your money into index funds and let it ride.
:SOURCE:

[theape] 31/12/2002 00:34

still holding my ftse calls energyi. ( about the only position I do have at the moment).

macd very interesting ( and the lead indicators). in the last 6 months when they have had similar bullish patterns we've had about 400pts on the indeces in a week. not sure we'll get that much though. RSI may be double bottomming.

still time will tell whether it fails.

[energyi] 31/12/2002 00:25

What I posted in response to the above:

Thanks for that posting.

I have started a thread (on Advfn.com's PBB) called: "Are Stock Mkt. Crashes Predictable? (MKT)" and there I cite the work of a Prof. Sornette of UCLA who has used mathematic algorithms from Physics to make accurate market forecasts.

Has the Prof cracked it, or is he a crackpot? I am impressed by his work, but some object saying that markets are un-forecastable. Because if one could forecast a crash early, then everyone would act on it and the forecast wouldnt happen, or it would happen too early.

Your comment shows why this wouldnt happen. In a raging bull market (where fast-running greed is creating the potential for a crash), the warning will simply be ignored. Seems like all of Wall street's accurate forecasters quite or were fired as the market raced to excessive greed.

Good Luck in 2003!
Personally, I think a small rally is about to start.
But the BEARS here do not want to hear that, do they?

[energyi] 31/12/2002 00:13

CRASH PREDICTIONS GET IGNORED in Bull Markets.

Here's an excerpt from a posting on WallStBear.com :

Overstone's warning

Posted By: midtownbear / Date: 12/29/2002 at 23:32:45

"No warning can save a people determined to grow suddenly rich." - Lord Overstone

I was reading the Sunday newspaper today and it had several op-ed articles speculating about next year. It didn't take long before I realized that they all basically said the same thing, with only slight differences in way they were written: yes, things are scary right now, but next year will be better.
It made me think of the reassurances made by Wall Street and economists year after year. They aren't being paid to tell the truth. Even being right has nothing to do with their paycheck.
It got me to thinking how fortunate I was to have done a great deal of homework so that I had some idea of what was coming so that I could prepare for it. Then I realized that I should be shouting a warning to everyone - Batten down the hatches! A storm's a'comin'! Or maybe "Fire! Everyone run for the exits!" After all, isn't it your responsibility as a member of humanity to save everyone possible from that fire in the crowded theatre?

And then I realized that I had been trying. A lot of people had been trying. I tried with my own family and friends. They all nodded their heads, agreed with the premises of my arguments, and admitted that I made good points. They then ignored all my warnings and did what they were going to do anyway. And now a year later they still aren't listening to me, even after there is evidence that I was right. Why?

Why do people ignore good advice when it is negative? I think it is partly because the herd mentality - thinking that it is safer to go along with the herd. I think another part is people not wanting to believe something bad is about to happen. Let's face it, most of the time nothing bad ever does happen (at least not on a mass scale). But it's not like I'm holding a sign that says "The End of the World is Near." Judgement Day isn't coming, economic hardship is.

But the overriding reason people don't believe good advice is becuase most sources are telling them otherwise. They haven't learned anything from a year in which those sources were proven to have consistently lied. The investment bankers, the politicians, the media, and especially the CEO's. For some reason people just don't want to stop believing those sources. I guess quantity does win over quality most times.

It's depressing to be the Cassandra. It's depressing knowing that you can't stop what is coming. If you can't influence the people who know you, what chance do you have of changing the big things? But if you don't survive the coming crunch, who is going to take care of your loved ones?

[mikkydhu] 28/12/2002 20:04

energyi, I'm sure loads of people are interested in your predictions and act on them. Not all feel knowledgeable enough to make a useful contribution to the discussion or to trade in and out of positions as nimbly as you can. But you have introduced many investors to a wide range of possibilities, in my case PMs and Canadian miners, and you have alerted BB users to possible dangers, bubbles etc. I am sure many are appreciative, if silent. I am sure I don't speak for myself alone.

[bonsai] 28/12/2002 16:47

a crash may be predictable, but then anything is predictable !
surely you cant have a crash unless most people are on the wrong side of the market. so by definition,the majority do not act on predictions.
as it is only the correct predictions which come true,the real question is who do you believe sufficiently to take your money out of a rising market ?

to which there is a sometimes painful answer.

[clem] 28/12/2002 16:27

Energyi. If we do get your surprise rally I'll be on the side of the global spouse. :)

[energyi] 28/12/2002 16:05

Too BEARish?

Maybe medium term... but I am actually Net Long right now,
and expecting to add some aggressive Call buying next week as I
expect a "surprise" 3-4 week rally to SPX 960-970.

If it comes, then I will get VERY BEARISH as the world and his wife
decide the market is about to go to the MOON

[clem] 28/12/2002 15:47

Energyi.

"Very few people are interested, despite the consistent accuracy of
these forecasts."

Absolutely not the case. There is always a deafening silence when people agree on a BB.

Personally I think you are too bearish, but Im always the optimist. :)

The thing that strikes me is that if the bears are right about the economy, or rather the next leg down or to paraphrase, the end of 'western economic world' then you could easily see gold at $1000 an ounce.... but lets just say Im not a gold bug. :)

[energyi] 28/12/2002 15:23

WHY ARE SO MANY FORECASTS WRONG?
This excellent article makes some of the same points.
(excerpt):
" It should have been very simple for any competent analyst to recognize the bubble as the ratio of stock prices to corporate earnings hit levels that clearly were not sustainable in the late nineties. Had analysts and policy makers recognized the bubble and warned investors and the general public, stock prices never would have risen to their bubble peaks, and the resulting damage would have been far less than what the economy is currently experiencing. While the exact point at which the market had reached an unsustainable level could not be known, and the precise timing of its collapse could not be predicted, it required only simple arithmetic to recognize that the market had reached levels that guaranteed bad returns to long-term investors at the end of the nineties.

The failure to recognize the bubble and warn of its consequences stems in part from a misunderstanding of the stock market and its role in the economy. While it is good to have a strong stock market, which allows firms to raise capital at a reasonable price, a stock market that has risen beyond levels that can be justified by reasonable expectations of future profits damages the economy. It leads to mistaken investment decisions and causes households to underestimate their need to save for the future. A stock market that is seriously over-valued is at least as detrimental to the economy as a stock market that is significantly under-valued."
:LINK:

[energyi] 28/12/2002 15:18

Easier said than done!

In fact, most predictions are wrong, and the ones that are right
tend to get ignored. Example: I have consistently talked about the
virtues of gold mining stocks, and successfully forecast (with minor
time variations) two important rallies over the past year. (Anyone
who followed my "Mugs Portfolio" tips would have made almost 60% in
less than two months.)

Very few people are interested, despite the consistent accuracy of
these forecasts. And now I am suggesting taking profits on gold shares
and investing in utilities and watching for an opportunity, within days,
to buy index calls. Is there any interest? Next to none. Most people
go on about loss-making tech shares, yesterday's dream, rather than working
hard so they can anticipate the next emerging trend before it happens.

Mr.Sornette's forecast calls for a small rally for the next few weeks,
fiollowed by a long crash into 2004. So what are investors doing? Small
investors are turning Bearish, and professionals Bullish. If we see a
3-4 week rally, i bet those positions will reverse, just as the market
is about to start a long descent.

Sornette's forecasts would stop working if a majority believed them and
acted upon them early. But if he is really forecasting changes in
sentiment, then the forecasts will not be believed (widely) until it is
too late to act on them... (Just like my gold forecasts?)

[clem] 28/12/2002 14:59

Surely if you could predict a crash, you'd pull your money out early and the market would crash before the predicted crash, so the prediction would be wrong.... or am I missing something!!! :)

[energyi] 28/12/2002 14:42

Article, Sect.X

4-PREDICTING FINANCIAL CRASHES?

Stock market crashes are momentous financial events that are fascinating to academics and practitioners alike. Within the efficient markets literature, only the revelation of a dramatic piece of information can cause a crash, yet in reality even the most thorough {\em post-mortem} analyses are typically inconclusive as to what this piece of information might have been. For traders, the fear of a crash is a perpetual source of stress, and the onset of the event itself always ruins the lives of some of them, not to mention the impact on the economy.

A few years ago, we advanced the hypothesis [Sornette et al., 1996] that stock market crashes are caused by the slow buildup of powerful ``subterranean forces'' that come together in one critical instant. The use of the word ``critical'' is not purely literary here: in mathematical terms, complex dynamical systems such as the stock market can go through so-called ``critical'' points, defined as the explosion to infinity of a normally well-behaved quantity. As a matter of fact, as far as nonlinear dynamic systems go, the existence of critical points may be the rule rather than the exception. Given the puzzling and violent nature of stock market crashes, it is worth investigating whether there could possibly be a link.

In doing so, we have found three major points. First, it is entirely possible to build a dynamic model of the stock market exhibiting well- defined critical points that lies within the strict confines of rational expectations, a landmark of economic theory, and is also intuitively appealing. We stress the importance of using the framework of rational expectation in contrast to many other recent attempts. When you invest your money in the stock market, in general you do not do it at random but try somehow to optimize your strategy with your limited amount of information and knowledge. The usual criticism addressed to theories abandoning the rational behavior condition is that the universe of conceivable irrational behavior patterns is much larger than the set of rational patterns. Thus, it is sometimes claimed that allowing for irrationality opens a Pandora's box of ad hoc stories that have little out-of-sample predictive powers. To deserve consideration, a theory should be parsimonious, explain a range of anomalous patterns in different contexts, and generate new empirical implications.

Second, we find that the mathematical properties of a dynamic system going through a critical point are largely independent of the specific model posited, much more so in fact than ``regular'' (non-critical) behavior, therefore our key predictions should be relatively robust to model misspecification.

Third, these predictions are strongly borne out in the U.S.~stock market crashes of 1929 and 1987: indeed it is possible to identify clear signatures of near-critical behavior many years before the crashes and use them to ``predict'' (out of sample) the date where the system will go critical, which happens to coincide very closely with the realized crash date. We also discovered in a systematic testing procedure a signature of near-critical behavior that culminated in a two weeks interval in May 1962 where the stock market declined by $12\%$. The fact that we ``discovered'' the ``slow crash'' of 1962 without prior knowledge of it just be trying to fit our theory is a reassuring sign about the integrity of the method. Analysis of more recent data showed a clear maturation towards a critical instability that can be tentatively associated to the turmoil of the US stock market at the end of october 1997. It may come as a surprise that the same theory is applied to epochs so much different in terms of speed of communications and connectivity as 1929 and 1997. It may be that what our theory addresses is the question: has human nature changed?
:LINK:

[energyi] 28/12/2002 14:05

Chart A: Nikkei (past) vs. SPX (current)


This figure shows 8 years of the evolution of the Japanese Nikkei index and 7 years of the USA S&P500 index, compared to each other after a translation of 11 years has been performed. The years are written on the horizontal axis (and marked by a tick on the axis) where January 1 of that year occurs. This figure illustrates an analogy noted by several observers that our work has made quantitative. The oscillations with decreasing frequency which decorate an overall decrease of the stock markets are observed only in very special stock markets regimes, that we have terms log-periodic ``anti-bubbles''. By analyzing the mathematical structure of these oscillations, we quantify them into one (or several) mathematical formula(s) that can then be extrapolated to provide the prediction shown in the two following figures.


Chart B: Old Forecast (Aug.2002)

Fig. 1 shows the prediction of the future of the US S&P 500 index performed on August 24, 2002. The continuous line is the fit and its extrapolation using the super-exponential power-law log-periodic function derived from a first order Landau expansion of the logarithm of the price. The dashed line is the fit and its extrapolation by including in the function a second log-periodic harmonic. The two fits are performed using the index data from August 9, 2000 to August 24, 2002 that are marked as black dots. The blue dots show the daily price evolution from August 25, 2002 to December 18, 2002. The ticks in the abscissa correspond to January 1st of each year.

Chart C: New Forecast (Dec.2002)


Fig. 2 shows the new prediction of the future of the US S&P 500 index using all the data from August 9, 2000 to December 18, 2002 illustrated by (continuous and dashed) black lines. Again, the continuous line is the fit and its extrapolation using the super-exponential power-law log-periodic function derived from the first order Landau expansion of the logarithm of the price, while the dashed line is the fit and its extrapolation by including in the function a second log-periodic harmonic. We also present the two previous fits (red lines) performed on August 24, 2002 (shown in Fig. 1) for comparison, so as to provide an estimation of the sensitivity of the prediction and of its robustness as the price evolves. The blue dots show the daily price evolution from August 9, 2000 to December 18, 2002.

[r.dryden] 24/12/2002 00:59

Thirty spokes share the wheel's hub;
It is the centre hole that makes it useful.
Shape clay into a vessel;
It is the space within that makes it useful.
Cut doors and windows for a room;
It is the holes which make them useful.
Therefore profit comes from what is there;
Usefulness from what is not there.
(Lao Tsu, Tao Te Ching)

[vs] 23/12/2002 18:32

It ought to be obvious that if there are serious inefficiencies in the market (i.e. stocks priced incorrectly) then something or some product will emerge to try and make some money from that discrepancy. However, eventually the wghole market will cotton on and the inefficiency will be dissipated (until the next one is found).

I have found that the only way to remain a winner in different market conditions is to have a good grasp of valuation methods and to be able to judge changes in sentiment. Although we like to think of humans as being highly individualistic, investors, especially institutional ones, behave like herds. The fleet of thought/foot can take advantage of this.

[wageslave] 23/12/2002 18:14

Energyi, believe me, once market behaviour becomes predictable stock markets will cease to exist (edit: as we know them). They do change and the moves into bonds and other instruments may be a forebearer of great change. The other what if is, if markets cannot deliver returns they will also cease to exist, well as we know them.

Any insight into longer term trend analysis is helpful, but the what goes up and what goes down analysis is pretty much useless over the longer term.

Any modle must involve an analysis of the availability of 'cheap money' and revenue coupled to the human/natural psyche that created a bubble or burst in the first place.

I am not convinced the prof has it sussed, but a valuable contribution nonetheless. The length of cycles is particularly interesting to investors and may well be the most useful tool for those who seek to identify trend reversals.

We await, with baited breath, the universal law of stock markets which may offer a great deal of insight into the human condition itself.