One Way Days: Are the rules different this time ?

Anyone have thoughts on if the change in the “uptick rule” has contributed to the increased volatility?

Trying to predict markets with indicators is a fool’s game. Chuck Lebeau computer backtested every indicator under the sun and found none that can do better than a coin flip.

I have followed and tried Lowry’s 90% up and down days, ARMS index, Mcllaran Oscillator, etc. etc. and none of them worked. In fact too many indicators led to analysis paralysis and led to trigger freeze.

Finally I woke up and stopped trying to predict markets and follow price action instead. That’s when my trading started to become profitable.

In your post, you quote Paul Desmond as follows:

“Paul Desmond, president of research service Lowry’s Reports in North Palm Beach, Fla., who has done extensive research on the subject. “We don’t have anything like that anywhere in our history” of data, going back to 1933, he says.”

If the secrets to markets can be decipher with historical data, then the Forbes 400 will consist of historians. Each market situation is unique and none ever repeat in exactly the same way.

Some Guy,

I guess all the indicators that Simons used didn’t save his fund from the losses in this recent decline.

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BR: He had some losses in July and August, which have already been made up for.

He’s up 23% YTD.

Renaissance Technologies shatters the random walk theory, and makes a mockery of the EMH . . .

I was an investor in Renaissance in my role as PM for a Fund of Funds. They gave/give NO information about their trading models/algorythms, but I know that most are very short term signals, which have very little to do with underlying company fundementals.

To give you an idea of their concerns about the proprietary nature of their models, they will not provide daily or even weekly performance estimates, for fear of some other quant group reverse engineering their models from the return data.

I agree with PC as well–while I am skeptical of the value of TA on anything, for sure it has more value for individual stocks than the market as a whole.

I have a longer thought—all I hear is the bulls say “buy because we will avoid a recession” and bears say the converse.

But I view “recession” as irrelevant. I mean, as investors, [i don’t trade], who really cares whether GDP drops or not!?! Like TA for the market, if you are invested in the components of the economy that are booming, who cares about those that aren’t ?

This is what i keep telling the mega bears–my clients are up over 20% with no leverage or short selling this year. I own almost no financials and lots of small industrials that are participating in the worldwide capital spending boom. I don’t own high end retailers, but obviously they are thriving as well. I don’t want exposure to poor Joe Sixpack who is taking the brunt of $3 gas and the blowup of mortgages and inflation ex-inflation [as BR likes to say].

So I just think whether we fall into technical recession or not is a useless discussion.

Barry — I think you would do a lot better doing what you do — analyzing reality instead of past action.

There were good reasons stocks were a buy after the 1987 drop — mainly because the market dropped 20% plus… but other reasons besides… What was the market YTD after the 87 plunge? I assume it was negative for the year?

Now the SP index might be off 6% from its high — but it’s still positive for the year…

I don’t understand how you can ‘bargain hunt’ after the markets have been up 4 years in a row and are STILL positive for the year despite a broken dollar, looming foreclosures, high inflation, record earnings/margins for most companies…

I actually heard someone on CNBC say the markets are a discounting mechanism — like that holds anymore.

I think the only question to ask is: What would the greedy pigs do? They’ll be happy to do a 9/11 patriot rally… but now they need to get out so a morning push to allow for some distribution all day long.

If Bernanke doesn’t signal a willingness to stop the falling dollar — we’re all in big trouble.

By the way — I watched you CNBC the other day. I notice that everyone agrees with you — but they get real quiet and try not to ask you any follow up questions. Like every time they hear a reality check they want to pretend they didn’t hear it.

Very amusing how the hedge funds can ignore reality. I guess it’s a winning strategy… up to a point.

The sell short uptick activation was largely ineffective since trading systems became automated (market order type).

All you need is to 1) send your sell short order, 2) send a limit sell 100 if the bid/ask spread is too large and 3) send a market buy 100 to get the uptick and the intended sell short activated.

That was handy in less active stocks.

you can thank china for yesterday and today…..and for propping this whole POS market up until tuesday…

there I feel better now

Ciao
MS

The explosion of ETF’s and “Ultra” ETF’s has undoubtedly moved the volatility needle several standard deviations (just look at the volume!) They create “double/quadruple buys/sells”. These are the choice tools for these “active” hedge funds you mention.

The 90% days rule may have “less teeth” due to the constant two sided trading recently, but more telling to me is the standout insider buying.

I don’t believe I’ve seen you discuss this Barry…am I mistaken?

Paul Desmond, president of Lowry’s Reports, spoke to this on Monday as well:

PAUL DESMOND: We think we roll into a bear market. We think we are in the early stages of a full-fledged bear market. We generally, the cycles of bull and bear markets follow a regular course. They tend to occur at about a four-year or 52-month cycle. In this case, the last major market bottom was in October of 2002. And we should have already seen a market top. So this bull market has been — lasted longer than most bull markets last. And when that has happened in the past, it’s generally lead to a more intense bear market when it finally does develop.

JEFF YASTINE: One of the things you are looking for are these 90 percent upside days, 90 percent downside days. Explain those for a moment.

DESMOND: In the process of the panicked selling, we see what we refer to as 90 percent downside days which means that 90 percent of all of the volume, 90 percent of all of the price action on a particular day was on the downside. It simply means heavy panic selling where people are just dumping stocks as fast as they can get out. Generally in a major decline, you will see a series of these 90 percent downside days on the way down.

YASTINE: All right. So we’ve had a market decline since mid-July or so. How many of these 90 percent down side days have we seen so far?

DESMOND: Well, this market has been highly unusual in that we started to see these 90 percent downside days, these panic selling days very quickly after the top. The top of this market was on July 19th. That is where the Dow and the S&P topped. And by the 23rd, we were seeing our first 90 percent downside day. What that says is that investor psychology is extremely nervous, that they are on the edge of panic on a fairly regular basis. And that’s — that’s the kind of environment that an investor should step aside from. You don’t want to be — you don’t want to be caught in a panic situation.

YASTINE: So people who follow your methodology might think all right, we’ve seen a bunch of these 90 percent downside days. The bottom in the market has to be close at hand.

DESMOND: Well, if you go back in time, for example, if you go back to the 1973, 1974 bear market, we had 14 of these 90 percent downside days between early — early 1973 and the bottom in December of ’74. So the history says that when you start to see two or more 90 percent downside days, the best policy is generally to get to the sidelines and wait out the decline, just be very patient and relaxed until the last 90 percent downside day is eventually followed by a 90 percent upside day. And that would be a relatively strong indication that we probably turned the corner and the bear market is over.

NBR TRANSCRIPT
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I fail to understand why Desmond doesn’t mention the fact that there have been several 90% UPSIDE days as well. This changes the statistical results meaningfully.

It’s a two sided market.

The ‘enormous’ short interest out there?

Is this true?

It seems that everyone is leveraged one way — to the upside!

Insider buying is an atom on a pimple on a dust mite on the left nut of the market. One finagler alone—Tan Angelo—has dumped more this year than all the financial insider buyers put together.

Much was made a couple weeks ago about some Wachovia board member who bought a few million worth of shares at $45. “See! Bullish insider buying!”, cried the bullsie-wullsies. Not so fast. Turns out this guy buys a few million shares every August, price-insensitive. Whoops…

What does a few hundred million worth of insider buying over six months mean to a market with a $14 trillion capitalization? Zilch, nada, nuttin’. Especially when you consider the billions upon billions getting dumped left and right as the market rose.

And even if these insiders are correct—and there’s no guarantee they will be—it could take 2-3 years for their confidence to be rewarded. Insiders were buying after 9/11 and all during the first half of 2002. But the market went down anyway and it took these folks 2-3 years to get whole.

Follow price, not the penny-ante insider buying.