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Understood. In fact, the SC analog doesn’t say there
will be a crash. Both 1929 (20%) and 1987 (10%) first waves were choppy
declines but no crash. I’ve added my “rationalization”
that that same choppy decline over the period October 26 to the second week in
November. Just bigger.
Interesting that you mention 11/3. Web bots has long
predicted a major 3 day turmoil beginning Nov 3. Of course they have been
predicting an event for today that would lead into that crisis. So far, I
don’t seen one.
Jim
From:
realtraders@xxxxxxxxxxxxxxx [mailto:realtraders@xxxxxxxxxxxxxxx] On Behalf
Of Ben
Sent: Monday, October 26, 2009 12:02 AM
To: realtraders@xxxxxxxxxxxxxxx
Subject: RE: [RT] 1929-1987 Spiral Calendar Analog update
HelloJim
No crash
is seen for next week
Most
likely top 11/3
Then
Watch out
bellow
Ben
From: realtraders@xxxxxxxxxxxxxxx
[mailto:realtraders@xxxxxxxxxxxxxxx] On Behalf Of Jim Ross
Sent: Sunday, October 25, 2009 9:54 PM
To: realtraders@xxxxxxxxxxxxxxx
Subject: RE: [RT] 1929-1987 Spiral Calendar Analog update
Reversion to the mean is a math concept
that can be explained in many ways. Suppose you had a population of 500
numbers ranging from 1 to 1000. You’ve already put all 1000 of them
in a computer and you know, without any doubt whatsoever, the
population’s mean is 500. Well, you decide to draw all 1000, one at
a time and each time you average all the items you’ve sampled to
date. Well, the first item drawn at random is a 10. Well,
that’s a 490 away from the mean. The next time is a 590 so the
sample average is (590 + 10) /2 = 300. Well, your sample mean is now a
lot closer to the mean. The next you pull is 990 so the sample mean is
(990 +590+10) /3 = 530. Well, not only have you ‘reverted’ to
the mean, you’ve surpassed it. And that’s a concept implied
by reversion to the mean. Observations exceed or go past the mean.
The 100 year Dow is a trend line
reflection of a straight line which is upward sloping. The last 30 years
has been a parabolic move up and the current level is likely 4000 points above
the mean. Reversion to the mean would imply the Dow would want to return
to its long term average. But it also means that when there is an overshoot
of the mean. If Dow wants to get to the straight line regression
“mean” at 4000 (I don’t know what the number is but 4000 is
in the ballpark), then it will likely exceed the regression line and go lower,
3000 or 2000.
What are the probabilities?
Depends on your personal belief system. Mandelbrot and Taleb conclusively
proved that the market is not a “random walk” Gaussian coin
toss. Mandelbrot believes there’s a hidden order to the market that
exceeds human ‘linear’ thought to understand and allusion to it can
only be gleaned by fractal geometry. In Taleb’s calculations, the
possibility of the 1987 crash was a 1 in 5000 lifetimes (where a lifetime is
the lifetime of the universe) possibility. In other words, it is
infinitely impossible that 1987 occurred according to Gaussian gaming or bell
curve probability.
So, if you believe in Gaussian
randomness, the answer is the next coin toss is a 50/50 probability. If
you believe there is order, the next toss is a head. If you believe in
randomness, I believe the vast improbability that the first two dates COULD NOT
HAVE occurred. Hence, I cautiously believe the next two dates will
occur. It’s good enough for me to take a levered short position (I
like QQQQs so I have 2400 contracts or 240K shares of November 38s and 5880
contracts of 37s).
My positions are based on entirely
unlikely events and I lose most of the time. The time I won was this time
last year and I won enough that it dwarfs all losses I’ve had in
multiples of 10s. I call it my Black Swan Black Sholes strategy.
Black Sholes was created by Merton, Black, and Sholes to project fair pricing
for options. The Gaussian stochastic probability, as Mandelbrot proved
rather conclusively in The Misbehavior of Markets, dramatically underprices the
risk of “long tailed events” in the bell curve; that far more of
these long tailed events (renamed by Taleb as Black Swan events) occur than
thought. And when they occur, out of the money options pay far too much
given their Black Sholes pricing. So, at the most critical points of the
crisis last year, there was question verbalized on CNBC by Joe Kernan as to
whether the organized CBOE options market could survive. Of course it
did, but that’s the defect in Black Sholes. And remember, the principals
of Titanic LTCM quant fund were none other than the brilliant quants who
developed Black Sholes (I hope I get this right), Fisher Black and Myron
Sholes. The 1998 crisis that nearly melted the world economy was created
by the greatest of all bell curve quants. So, I’ll take my losses
and try to find the Black Swan that dwarfs the losses in leverage.
Jim
From: realtraders@xxxxxxxxxxxxxxx
[mailto:realtraders@xxxxxxxxxxxxxxx] On Behalf Of Mark Simms
Sent: Sunday, October 25, 2009 9:13 PM
To: realtraders@xxxxxxxxxxxxxxx
Subject: RE: [RT] 1929-1987 Spiral Calendar Analog update
What about "reversion to mean"
theory ?
IOW, although 100 heads in-a-row is
POSSIBLE, what are the probabilities of it occurring ?
So, in this case, what are the probabilities
of 5 heads in-a-row occurring ?
Just a thought.....
From: realtraders@xxxxxxxxxxxxxxx
[mailto:realtraders@xxxxxxxxxxxxxxx] On Behalf Of Jim Ross
Sent: Sunday, October 25, 2009 7:39 PM
To: realtraders@xxxxxxxxxxxxxxx
Subject: RE: [RT] 1929-1987 Spiral Calendar Analog update
Nassim Taleb posed exactly that question
in his book The Black Swan. The question was put to the MIT quant and
Guido the street wise bookie as such:
This is a FAIR coin and FAIR coin toss
and it has resulted in four heads in a row.
The quant said “Of course not, the
fifth trial is an entirely independent event and the probability is 50/50.”
Guido said. “It’ll be
a heads. Yas jest can’t flip four heads in a row. The
game’s rigged. It’ll be a heads.”
The question is whether there’s a
hidden order in time and space. Benoit Mandelbrot, the greatest
mathematician of our lifetime IMO and the discoverer of the Mandelbrot set,
would say there is a hidden order. But it isn’t a Gausian
“bellcurve” order; its not a gaming coin toss population of events
. It is not linear and likely we will never discover it. Our only
glimpse of it will be through fractal geometry.
Jim
From: realtraders@xxxxxxxxxxxxxxx
[mailto:realtraders@xxxxxxxxxxxxxxx] On Behalf Of GerryB
Sent: Sunday, October 25, 2009 7:08 PM
To: realtraders@xxxxxxxxxxxxxxx
Subject: Re: [RT] 1929-1987 Spiral Calendar Analog update
Now, consider that the model HAS SUCCESSFULLY predicted the first two
out of the four dates? Does that make the improbable less
improbable?
I know it does, but by how much. About that I don’t have a clue.
But,
again, it is interesting.
SAY YOU FLIP A COIN 4 TIMES IN A ROW AND IT COMES UP
HEADS...........DOES THAT INCRECREASE THE PROBABILITY THAT ON THE NEXT
FLIP IT WILL NOT BE HEADS?.................OR DOES IT REMAIN THE SAME:
50/50 AS IN THE FIRST 4 CASES?????
GERRYB
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