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Wait a minute...re: "everyone knows markets over and undershoot"
If that is the case, then stochastics should "work" as a technique for
measuring over/under shoot...
but Mark Brown and others have said Stochastics "suck" in a nutshell.
YAC : Yet Another Contradiction
Markets drive people crazy because every time someone comes up with a good
market-winning idea,
a new YAC appears.
> -----Original Message-----
> From: John Hamon [mailto:jhamon@xxxxxxxx]
> Sent: Thursday, April 05, 2001 12:33 AM
> To: Omega_List
> Subject: RE: Psychology Cycle
>
>
> nature abhors a vacuum, and i'm stepping in for mark brown. i miss him
> doing the heavy lifting...
>
> this "research" is pure yakamashi. everyone knows markets over and under
> shoot. soros has written a whole book obfuscating this very
> obvious fact.
> read the crowd, etc. and you'll get the same stuff. yada yada yada.
>
> in this piece i see nothing that tells you when to pull the trigger. the
> sum total of all market participants in pricetime (b.s. way of
> saying price
> and voume in time) tells you all to need to know. the rest of it is just
> blowing smoke up your own dugan.
>
> there. i feel better. where the heck is mark when we need him?
>
> jh
>
>
>
> -----Original Message-----
> From: Gentle Ox [mailto:enchant@xxxxxxxxxxxxxxxx]
> Sent: Wednesday, April 04, 2001 7:12 PM
> To: omega-list@xxxxxxxxxx
> Subject: Psychology Cycle
>
>
> FYI...Interesting Posted on the Behavioral-Finance group and I have
> permission
> from the author to post it here... Stephen
>
> The Psychology Cycle
>
> It has been a while since I have posted an update, but so far I have
> not have had a compelling element to issue an update, my projections
> regarding a further DOW slide still stands. We have had a brief rally
> late March as the DOW attempted to cross 10000 again, but the attempt
> failed leading yet again to another disappointment. The technology
> warnings continues at an alarming rate with virtually all the
> technology stars, Internet stocks, B2B stocks, networking, fiber
> optics, semiconductors and wireless all warning.
> The parade of warnings stands to a contrast to apparent stable shape
> of the economy, manufacturing picked slightly and retail sales
> holding fine, while consumer confidence revered its decline.
> The contradiction has a simple explanation in my mind, it is Investor
> Psychology, the market through out history has gone through
> psychology cycles from ultimate optimism to rock bottom despair,
> those cycles hold some connection to the economic cycle, but the
> volatility is of such an extent that both cycles seems hardly
> related. For example: between 1950 and 1959, the S&P500 earning
> growth stood at 16% over that entire period, while the S&P almost
> tripled in value*, another striking example is the fact that between
> 1929 to 1932 the S&P index fail by 81% while real dividends fail by
> only 11%. Also between Jan 1973 & December 1974 the S&P index fail by
> 54% with only 6% drop in dividends during the same period*.
> The above is just an example of how the volatility of the market can
> go a long way regardless of the underlying fundamentals, the
> volatility can go either way from an extreme upside like the
> sevenfold in crease in stock prices between 1920 to 1929, compared to
> a 3 fold increase in the S&P index earnings*.
> At this moment in history I feel we are entering another period of
> overreaction following a period of another opposite overreaction,
> both periods can be regarded as an example of the psychology cycle
> unfolding in both directions.
> Based on a survey between I conducted between Feb 2001 to April 2001
> of 82 investors, 90% said that they consider fundamental analysis
> (50%) or technical analysis (40%) as the most important factor in
> their investment decisions. Both camps stand to be disappointed if
> the history stands as a guide, hence the market is not reacting to
> fundamental or technical factors but rather to a prolonged form of
> investors psychology turf that will lead to further declines as
> investors gradually escape the carnage, while causing more carnage in
> the process.
> Having said that the NASDAQ seems to be approaching a bottom, the
> NASDAQ is close to a 70% decline from its inter day high of 5132 in
> March 2000, but the fact that we are near a bottom does not mean that
> we will start a rebound in the near future, the market can remain
> stuck within that range for months to come.
> I still hold that the DOW should dip under 9000 to 8500 before we can
> have a sustainable upside in the market.
> It might be odd as a suggestion, but I think the best way to analyze
> the market those days is to hire an army of psychologists specialized
> in mass psychology, since the stock market appears to be a continues
> real life experiment of individual behavior regarding uncertainty
> within a group of people with similar conditions. Some might argue
> that EMH justify the way the market does react, but many have
> questioned the value of EMH, Robert J. Shiller book "Irrational
> Exuberance" present some strong justifications against EMH.
> According to an article by Pierre Belec on Reuters, Belec referred to
> magazine covers as perhaps a good market indicator, Belec is
> referring to a one way to measure market psychology.
> Humans in nature are irrational agents that get carried away one way
> or another regardless of the underlying investment fundamentals,
> according to my survey between Feb 2001 to April 2001, out of 72
> investors 63% reported that psychology was the reason why they lost
> in the stock market rather then a default in their analysis.
> It is not my intent to justify behavioral finance in this article, as
> there are many experts much better qualified to deal with that
> question then I do, it is my attempt is to apply the behavioral
> concept to the market today and come out with a useful prediction to
> where the market is heading. Fortunately, so far I have been right on
> my analysis for the last 6 months, but I still need a longer time
> frame to take my approach seriously. The coming few months will be
> interesting, as the divergence between the market and the real
> economy becomes more pronounce, the concept of a psychology cycle
> might gain more attention.
>
> Nawar ALSAADI
> 04/04/2001
>
> *. Figures taken from R.J Shiller book "Irrational Exuberance" 2000.
>
> http://www.geocities.com/Nawaralsaadi/Nawarmain.htm
>
>
>
>
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