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I have been working on an indicator that measures the probability of each
stock in the OEX to move higher (or not) the next day. I combine each
individual reading into a composite reading. Todays composite reading is
.72. Readings of .80 or higher have been followed by a significant market
correction within a few days. The probability calculations are based on
work that was done at Bell Labs in the early 40's by Claude Shannon,
(Shannon Information Theory), J. L. Kelly jr (Kelly Criterion), and Ed
Thorp (Beat The Casino's). Some of you might remember Shannon and Thorp.
They took their technology and went to Las Vegas where they were reported
to have made millions before anyone caught on to them. Thorp went on to
start one the first program trading firms after he was banned from the
casinos. Anyway the current reading of .72 is not fully in the danger
zone yet, but for me the caution flag is up. I think December could get
nasty on the down side.
Ron McEwan
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