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Thank you Ray for your enlightening
reply.
I concur that in general, it can appear that a
purely mathematical approach to market action can leave one blindsided to the
emotional forces unique to human behavior. And yes, there are lots of blindsided
individuals from scientists to traders out there.
A few points of clarification of my own humble
position:
1) It's been stated many times that no one
person could literally draw anywhere near "all" the money from the market. Any
fund manager or trader worth his salt knows the limitations of size vs. slippage
vs. "stealthiness". And frankly, from October until recently, I cannot help but
speculate that "someone" has been yanking the market's chain to the profit of
"others" in a very big way.
2) This log periodic theory is just that, a
theory. Its just amusing that others had the same impulse to post the chart as I
had, at the same time. It's only purpose here is to come back to it in six
months and compare. For instance, one could argue the fact that the reason the
market seemingly followed the projected lines "less closely" later in 2002 is
once again, overt market manipulation. Or, it could simply be that this is just
another blind-sided Doubting Thomas scientist that won't be convinced that's
he's wrong until he can feel the wound. We will all see soon enough. I only note
with interest that in general, it correctly picked out the rebound after Oct.
10th. before the fact, which is why it stays on my wall.
3) The market discounts future events, therefore
the market could begin it's downward trek before the major future earnings
decreases fully become evident.
4) History is famous for being made, not
copied...
Best regards and thanks for your timely
reply,
Gene Pope
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----- Original Message -----
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black">From:
Ray
Raffurty
To: <A title=realtraders@xxxxxxxxxxxxxxx
href="mailto:realtraders@xxxxxxxxxxxxxxx";>realtraders@xxxxxxxxxxxxxxx
Sent: Tuesday, December 31, 2002 3:28
PM
Subject: Re: [RT] Re: Interesting Look at
2003
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
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----- 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
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