Posts filed under “Quantitative”

Novembers in the Market

Dan Greenhaus is with the Equity Strategy Group of Miller Tabak + Co. He put out this fascinating analysis of what “Novembers” typically hold in store for us after nasty “Octobers”

Dan writes:

Okay, so we all know October was down a fantastically ugly 16.94%, the steepest decline since 1987 when that October declined 21.76%.  Going back to 1950, there have been 23 years in which October has been down by *any* amount from the prior September for an average decline of 3.15%.  Subsequent to those 23 years, the following November saw an average gain of exactly 1%, while the following two months, at the end of December, saw gains of a much more substantial variety; up 3.54%.  But of course the decline in this past October was outsized in comparison to the average October decline, so let’s narrow this down a bit.  Using only instances in which October saw a decline of 3% or more (eight such instances), the average gain at the end of November was 1.67% while the average gain at the end of December was 3.70%.  To a degree, this is not entirely surprising as one would assume that the steeper decline would lead to a steeper rebound.  But in most of those instances, the decline was relatively modest.  As I said, those 23 declines averaged about 3.15%, a far cry from October 2008.  The only analogous decline was the drop in October in 1987 which led to a subsequent 8.53% drop in November 1987.

As I noted, the depth of the decline we just went through in October has only one parallel in the post 1950 time frame, which is 1987.  So the next logical step is to head back to the 20s and 30s to get a handle on what occurred in that time period.  Unfortunately, the Octobers of that time didn’t fare too much better.  October 1929 was down 19.93%, October 1930 was down 8.88%, October 1932 was down 13.86%, October 1933 was down 7.82% and October 1937 was down 10.25%.  In the first three instances I noted, the subsequent November was actually down an additional 13.37%, 3.31% and 5.89% respectively and November 1937 was down another 10.25%.  Only November 1933 saw a gain, moving higher 10.27%.

The point is that while we would be inclined to think that a drop of the magnitude we just witnessed would, at the very least, produce a dead cat bounce, that assertion is not entirely supported by history

Category: Markets, Quantitative, Trading

Fractals: Hunting the Hidden Dimension

Nova discusses fractals, and the significance for various disciplines, such as Physics, mathematics and even markets:

Click for Video

In five parts:

They’re odd-looking shapes you may never have heard of, but they’re everywhere around you—the jagged repeating forms called fractals. If you know what to look for, you can find them in the clouds, in mountains, even inside the human body.
running time 11:36

In 1958, Benoit Mandelbrot begins using computers to explore vexing problems in math. They help him to understand repeating patterns in nature in an entirely new way. He coins the term fractal to describe them and develops the Mandelbrot set in 1980.
running time 9:51

Though many colleagues initially scorned Mandelbrot’s work, his mesmerizing fractal images launched a popular culture fad. More importantly, his book The Fractal Geometry of Nature explained how his ideas could be applied in the real world. Mandelbrot’s ideas inspire an ever-increasing number of applications, including the fractal antenna.
running time 10:40

Fractal patterns turn up everywhere in biology, from the irregular rhythm of the heart to basic eye function. The fractal nature of such physiological processes, which obey simple mathematical rules, offers hope of better diagnosis and treatment of problems as well as new insights into how such processes work.
running time 10:15

With carbon dioxide levels around the world rising, a team of American scientists travels to a rain forest in Costa Rica. They employ fractal geometry to analyze how much CO2 the rain forest can absorb.
running time 7:52

(Full transcript here)

Category: Mathematics, Quantitative, Science, Video

PBS Video: Taleb & Mandelbrot

Economist Nassim Nicholas Taleb and his mentor, mathematician Benoit Mandelbrot, speak with Paul Solman about chain reactions and predicting the financial crisis.

click for video



RAY SUAREZ: Finally tonight, we return to a subject on many minds these days: the financial crisis. Our economics correspondent, Paul Solman, checked back in with one particularly prominent voice in the investment world and his colleague, who guided his thinking.

Here is the pair’s sobering conversation on what may lie ahead.

PAUL SOLMAN, NewsHour Economics Correspondent: One of the world’s hottest investment advisers these days, Nassim Nicholas Taleb, author of "The Black Swan," who’s been warning of a crash for years, betting on one, and winning big.

He’s been ubiquitous in the financial media of late, from cable TV’s "Colbert Report" to the BBC’s "Newsnight," where he was infuriated by what he called "bogus accounting."

NASSIM NICHOLAS TALEB, Scholar and Author: The first thing I would get immediately, immediately, I would suspend something called value at risk, quantitative measures of risk used by banks, immediately.

PAUL SOLMAN: We sat down with Taleb and the man he calls his mentor, mathematician Benoit Mandelbrot, pioneer of fractal geometry and chaos theory. And even more than feeling vindicated, they’re both scared.

NASSIM NICHOLAS TALEB: I don’t know if we’re entering the most difficult period since — not since the Great Depression, since the American Revolution.

PAUL SOLMAN: The most serious situation we’ve been in since the American Revolution?


Top Theorists Examine Rippling Economic Turbulence   
PBS, October 21, 2008

Category: Markets, Mathematics, Quantitative, Video

Smart Money 30 Video

I did a video interview with Smart Money a few months ago — warning that the credit and financial crisis about to get a lot worse — and by the time they were ready to post it, the Dow had already plummeted 2000 points (or as its been known around here lately, Tuesday).

They had me come in and reshoot another 4 minutes worth:

Jeez, look at my eyes . . .  I have to stop smoking those big fatties in the car on the way to these things. Visine no longer seems to do the trick! (heh)


Hat tip George at Agoracom

Category: Markets, Quantitative, Video

S&P 500 Review

Category: Index/ETFs, Markets, Quantitative, Short Selling, Technical Analysis

Breakouts/Breakdowns on Fast Money (9/10/08)

Here is yesterday’s featured segment, Breakouts & Breakdowns on Fast Money with Dylan Ratigan.

Here is last night’s episode:

Breakouts & Breakdowns:  An outlook on PNY and NEM, with the Fast Money traders


The name Fusion is supposed reflect
that we use both technical and fundamental data points.

metrics we track are Trend (short, medium, and long term), Money
(stock and group), Short interest (relative to
float), Institutional Ownership, (we crunch it ourselves between official
quarterly releases),
Earnings Trend (are they still ramping, plateau-ing,
reversing or falling), and
Forecast Earnings Surprise. 

The last
metric is quite fascinating. we take the top analysts on any name in terms of
their recent earnings forecast record. When they are an outlier against the rest
of the analyst community, we often — about ~68% of the time — see an earnigns
surprise. I.E., when the top guy is bearish, and the rest of the dead fish are
bullish, you tend to see an downside surprise (and vice verse). Think Bove and
Whitney versus the geniuses who downgraded Lehman today.
When we get towards erarnings season, I’ll pull a few
names. Its pretty wild stuff. 

Our projected holding period is 3
months, plus or minus — but we hold longer if working (i.e., we are still short AIG from last year),
and always use stop losses when they are not working (i.e., covered the short in RIMM for a 5% hit).

Category: Quantitative, Trading, Video

Fusion IQ on Fast Money (9/9/08)

I am pleased to announce that my day job (FusionIQ) is now a featured segment on Fast Money with Dylan Ratigan.

The segment is called Breakouts & Breakdowns

Here is last night’s episode:

Breakouts & Breakdowns:  An outlook on FDO and JOYG, with the Fast Money traders

Category: Quantitative, Video

Writedowns vs Underwriting Scorecards

Category: Credit, Finance, Psychology, Quantitative

Analysts’ Profit Forecasts: Worse Than Ever!

Category: Corporate Management, Earnings, Investing, Quantitative, Really, really bad calls, Valuation

Analysts’ Profit Forecasts: Worse Than Ever!

Category: Corporate Management, Earnings, Investing, Quantitative, Really, really bad calls, Valuation