Re: [RT] Re: Interesting Look at 2003

["Ray Raffurty" <r.raffurty@xxxxxxxx>]

Hi Gene,
 
As you know you can write a formula(s) that will 
plot any curve.  Unfortunately, plotting a curve over a series of 
events such as the stock market and then projecting that curve into the future, 
is little better that speculation, and perhaps worse since with speculation at 
least you can change your mind if you are wrong.  If it where possible 
someone would quickly draw all available money out of the market and trading 
would stop.  As one old Wall St. sage once said; "Every time I think I have 
found the key to investing, someone changes the lock".
 
The problem with trend following is first 
determining when the trend starts. By definition this is impossible (one data 
point is not a trend, 3 points do not establish a pattern, 5 points may 
establish a pattern but it takes 7 or more to become predictable and many more 
to become reliable) so the best you can do is jump on an already 
established trend.  Secondly when outside events, including random 
ones, can influence the trend, there is no way to reliably predict 
when the trend will end (sorry Norman).  Not being able to predict when the 
trend will end and change is the death of all such systems and the 
bank account of traders.
 
Now look again at his chart and you will 
notice that there are many data points well outside his curve.  This means 
that he has applied a high degree of interpolation to "fit" the curve.  
These "outside data points will kill the average trader.  And, anyone who 
has ever developed a system will confirm the risks associated with curve fitting 
to the data.
 
His prediction on S&P500 of about 650 in 2004 
would mean that the average company would be selling for less than it's net 
asset value.  This can not happen for long since market forces will cause 
these companies to return to the norm either thru stock purchases by value 
investors or thru takeovers.  Also remember that a major cause of a 
stock's movement is based on future earnings.  His chart implies that there 
would be a MAJOR decrease in future earnings of S&P500 companies in mid 
2003
 
Finally history is strongly against him.  Bear 
markets that last more than 3 years are rare events indeed.  I believe 
there has only been one, the Great Depression.  His prediction on 
S&P500 of about 650 in 2004 would mean that the average company would be 
selling for less than it's net asset value.  This can not happen for long 
since market forces will cause these companies to return to the norm either thru 
stock purchases by value investors or thru takeovers.
 
Frankly, I don't see any real conviction on the 
part of Mr. Sornette.  He does not seem 
to have any understanding of the economy or markets and has just made a random 
association between amplitude increases, which can be observed in some but not 
all natural events (a plucked note does not show this phenomenon at 
all) over some but not all periods (earthquakes do but not consistently and 
not over all time periods), and a particular period in the market (the last 
3 years).  This may look impressive and may get him a grant or even a 
doctorial thesis subject but it is not a meaningful 
phenomenon.
 
Good luck and good trading,
 
Ray Raffurty
 
 
 
 
<BLOCKQUOTE 
style="PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
  ----- Original Message ----- 
  <DIV 
  style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black">From: 
  Gene Pope 
  
  To: <A title=realtraders@xxxxxxxxxxxxxxx 
  href="mailto:realtraders@xxxxxxxxxxxxxxx";>realtraders@xxxxxxxxxxxxxxx 
  
  Sent: Wednesday, January 01, 2003 10:30 
  PM
  Subject: [RT] Re: Interesting Look at 
  2003
  Hehe... looks like I should have read my email first before 
  sending this?I take it there is no great enthusiasm for this approach? 
  For educationalpurposes, may I inquire why?Best 
  regards,Gene (a little late in 2003) Pope----- Original 
  Message -----From: "Gene Pope" <<A 
  href="mailto:gene@xxxxxxxxxxxxx";>gene@xxxxxxxxxxxxx>To: 
  "swingmachine-list" <<A 
  href="mailto:swingmachine@xxxxxxxxxxxxxxx";>swingmachine@xxxxxxxxxxxxxxx>Cc: 
  <realtraders@xxxxxxxxxxxxxxx>Sent: Wednesday, January 01, 2003 10:24 
  PMSubject: Interesting Look at 2003> Hi 
  all,>> I've had this chart stuck up on my wall for some months 
  now. Thought you> might find it of interest. It's based on the authors' 
  projections usinglog> periodic formulas.>> I've found 
  it, in general, to be rather accurate so far.>> Just my rank 
  speculation, but 2003 looks like a war that is begun, then> either 
  doesn't go quite as planned, or economic reality starts to bite...> 
  deeply. This would certainly be a final washout if it came to 
  pass.>> Like the weather, I still think the further out you go, 
  the less likelyany> computed future comes to pass.>> 
  Sorry, but I have read so many of these papers I'm not sure which one 
  this> came from... ;~)>> Happy New Year to 
  all,>> Gene Pope>To 
  unsubscribe from this group, send an email 
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