Update on the Financial Crisis

Ok so the Clemson game was too compelling to write about sticks. Then of course I had to watch Alabama and Georgia. So I guess with all the 'trouble' in the market I just haven't had time to write. For the record:

In the month of September I have had:

a realized gain of over 18%.

Friday we sold short expecting a down market on Monday. Of course all of our shorts went. Monday we played it long at the end of the day and well.... made a boohootale (technical term LOL) of money today. I should mention for the next segment -

today at one point we were down 2.5% on our investement. We ended the day 6.5% up.

So about a year ago my partner and I were sitting in our data center looking at our data. I think at the time we were down 2% during the day. I guy who we have loosely worked with for several years came to visit us. He asked what we were doing and we showed him our positions in the market. His reponse to us was something to the following - If you guys were trained financial analyst you would probably be better off. We politely shook our heads and shrugged our shoulders. In ten years of historical data and nine months of live trading, we have never shown a month for a loss. In the last 2 months we have only shown 5 days for a loss and two of those were lapses in execution not the application. But what do we know.

Here is what we know and this is why burning stumps in the backyard has to do with stocks.

Stocks when selected one at a time in a one day engagement are a 50/50 proposition. However, when viewed as a collective group there are times in the market that stocks will reach a coherence level. Remember the example listed below about a sphere rolling down a hill. That actually occurs in the market. Our research indicates we could play those days alone and make over 60% on our investment.

We track every stock every day. We have made the assumption that the news which is listed after the stocks react is actually an excuse that explains the action and is actually not associated with the action. Look through my writings about Race and you will see a section on non-sequentor science. Specifically it has long been thought that more babies are born on a full moon. The fact is according to a physicist from App State more babies are born during the 3rd waning gibous LOL. So news and track records of stocks are out as analysis tools. So how do we keep making money no matter the market?

We watch pigeons. We watch insects on the windows of the data center. We look at sticks scattered around stumps and cigarette smoke. No we don't throw runes and conjecture from these behaviors. We look at these behaviors and apply them to the stocks.

What we realized best about pigeons is that there is a critical number of pigeons for a micro population that will cause the entire group to move. Interestingly enough we suspect the movement has no basis other than random independence of pigeons based on a time frame. What I mean by this is 10 pigeons within 2 seconds decide to reposition themself for whatever reason. This action stimulates every pigeon in the group to fly. The flight of all the birds actually disrupts the orginal 10 and once all the pigeons set back down there is now a group that is no longer satisified with the position and thus the pigeons fly again.

As to the sticks, try to light a stump with a match. You cannot do it. Stumps are very difficult to burn. I grew up without heat in my house. As a consequence I learned at an early age how to build a fire. I am quite good at it, and I pride myself on never using more than one match to get myself warm (if you ever live on fire heat alone you will understand the importance of embers). I take great care to select the proper piece of 'fat lighter' I split it carefully with my knife ensuring there is a paper thin point at the end. I gather small sticks and build a pire before I light the fat lighter. The fat lighter lights immeadiately and within the pire I insert a larger piece of fat lighter. As the fire builds I begin to add larger sticks until I am burning logs and then in this case stumps. There is a lot of preperation to setup but once the fire is going it is stable. What I found in my preperation for the stumps is my collection of larger sticks created a mosaic of small sticks all around the stumps. It seemed no matter how much I walked around the stumps adjusting the logs and fire, I could never collect up all the little sticks.

Here is my point. 1 little stick by itself does nothing. Since you cannot select any stock with better than a 50 / 50 one day chance of winning you cannot win looking at one, two or even 10 stocks. (Much research went into studying market sectors - it don't work people) However, if LOTS of little sticks are aligned in a pire and a small volitile stick is ignited, the whole pire will catch rapidly. Once the pire is going larger sticks will begin to burn (are you getting the analogy). But once the sticks are all burnt what you have is a random collection of little sticks that surround a large smoldering mass. If the smoldering mass goes out, those little sticks will not burn. If those little sticks are aligned against the smoldering mass the fire will start again.

Tony - this is giberish and nonsense. Ok, you don't have to believe what I am saying.
You, like the guy I mentioned before can continue to think understanding P/E and Earnings and financial reports is critical to short term performance of stocks. If you do, don't bitch about the markets. You had ever right to research your investments and make a decision. If on the otherhand you agree with what I am saying then you realize this is a game of chance and little different from gambling.

Approximately 4 times a quarter (the number varies) there is a coherence of stick alignment. This month has been extremely active for that alignment. Calculating the alignment is what we do. To do it we use several factors

One factor we call Tic Tac Toe. Another factor we call Mae West. Another Factor we call 20/20 energy and finally based on individual buy counts. When all the factors come together there is no question in the direction of the market. We have yet another method for handling days when there is not convergence.

The market is a gamble nothing more nothing less. But just like gambling there is a way to count to the cards.

Tueday holds 2 of the four factors for convergence. BTW Friday held 4/4 and Monday held 4/4.

At the end of the day

So the NYSE stayed down. Today we took the oppurtunity to buy to cover 2 shorts. While we had our worst and oldest stock (5 days old) climb within a 1% of going long. I am thinking we will get rid of it come monday.

So how are we fairing through the financial crisis....

0.9% per day since September 5th.

We do have 1 stock that is 5 days old that we haven't sold. It is down just over 1 percent.

http://www.stockprofet.com. Maybe during the Clemson game this weekend I will finish the discussion about little sticks and understanding the market and elections.

Go Short No Long LOL

So I am late to post but at least I am putting my money where my mouth is. We are hedged both long and short but here is how I see it. Tomorrow the market is down. Monday the market is up. That is not me speaking that is the model speaking. How do I know, the energy level suggests that Friday is down but it cannot go down more than a couple of days. We just completed the first hump of the MaeWest and Tic Tac Toe models suggest a strong short then long. In addition the model is getting WAY too confident in its calls. So that usually means a hard reversal.

Oh the key to all this, You have to know which stocks stick with the market and which ones don't.

I don't have time to talk about little sticks right now, but I will get back to the discussion eventually. Right now I am REALLY WORRIED about the FINANCIAL CRISIS (kiss my @$$) The market has dropped a whopping 90 points this week (btw it climbed 95 last week)

Stumping about the Market

So if you haven't read my section about 'Our Own Ignorance' and Joe Bidden then you need to read that one before you read this one. So in that section I talked about guessing the number of whatevers in a phone book. Enrico Fermi used to ask a similar question on his final exam in Physics. Basically he would ask how many piano tuners are there in Chicago. The point here is that if you make enough guesses you can calculate yourself to the correct answer. Because for every error you make to the left you will make a correspond summation of errors to the right. Hence the final point comes out to be correct.

When we first started down the road to determine the stock algorythm I felt this approach of infinite guessing has some merit. My initial thought was that we would take huge internet feeds of news articles and weight them, sum them and then generate some form of outcome. What I found was a discussion on Efficient market theory. Basically the theory said that everything there is to be known with regard to a stock exists in the price of the stock. That made sense to me. It fit well with the phone book guessing problem and the Enrico Fermi problem. So I read on. Louis Bachelier stated that using efficient market theory you could not predict the behavior of a stock, but I wanted to see if that was true. Since then we have been able to successfully pick a stock correctly 92% of the time. With some added controls we are hitting 98% success rates and our average returns are around 1.5% per investment. Ahh so there must be a pattern or trend that we have deduced. Well kinda... read on.

So the other night I was looking at polling data about the election. If you go to realpolitics.com you will see the polling results are very similar to stock graphs. The interesting thing is that they are roughly 48/48 with 4 percent going to other canidates. This same randomness seems to occcur in our model. The first day we sell 50% of our stocks the next day we sell another 10% so on and so on until we get to 92%. So why are stocks and elections so random when viewed in a short time frame. Why are there not patterns to these behaviors.

Think about a sphere rolling down a hill. When you let that sphere go you anticipate that it will roll down the hill not up. But does it? Actually on a micro scale some of the atoms actually do proceed up the hill. It is just that the lion's share of the atoms go down the hill. Our eyes detect the atoms drawn by gravity and what we see is the majority of the atoms that stick together and go down the hill. For months I watched pigeons out of the 20th floor of our building. I would see one pigeon fly and then another but most of the pigeons would stay. Eventually 4 or 5 or 10 pigeons would go all of a sudden and all the pigeons would fly away. Why is that? Well that brings us back to my most recent enjoyment.

I bought a house with a pool and 6 acres. I have hundreds of large oak trees on my property. My pool remained green no matter how much chlorine I put in it. It was a constant fight. So my son's friend's dad had a land clearing business. Adroitly I had him push down 5 trees. He asked Tony what are you going to do with those stumps. Being the outdoor kinda guy I said oh don't worry I will take care of them (saving myself $500)..... Ok so I am not that smart sometimes. But I started getting rid of the stumps. Pick axe in hand I chipped away at the dirt and then started burning. It was then that I realized what was occuring physically with the stocks and why the elections are so close. It was all about the little sticks. For so long I was trying to understand the big logs....and they have very little to do with it. I will explain more when I have some more time. Gotta get ready to sell a bunch of stocks...

Our Own Ignorance

So Joe Bidden is credited as saying during the crash of 1929 FDR got on the TV and calmed Americans while putting a plan into action to solve the crisis. The problem is that in 1929 Herbert Hoover was the President and the first 200 TV sets were not in use until 1936.

No wonder with leadership like this we don't understand the workings of the market. But I said I would talk about measuring events and I need to explain that in this post.

When I teach Introduction to Physics in my College Classes, there is a process that I like to do with my class that revolves around the scientific process of understanding Physical events. I bring in a phone book and I ask a student to pick any topic that might be in the yellow pages of the phone book.

Once the students suggested fence builders, once they suggested Massage Therapists... The topic has been widely varied. But the results have been consistent. Once we have a topic and a phone book sitting on the desk unopened, we begin to determine the number of listings in the phone book for the topic selected. Yes it would be easier to just open it up and count, but the example would be lost.

Typically we start by guessing the population for the area, then depending on the nature of the service we guess the numbers associated with the grouping and so forth. By making enough guesses we then combine our guesses and numbers to get us to a final result. Once we have come to our final result, we open the book and count the number listed. In all the semesters I have taught this topic, we have never been wrong by more than 10%. In many cases we have been spot on. How does this work and how does it apply to the election and the market. I will post that more, I need to go look the market - oddly enough my long purchases from yesterday are up in the pre-market LOL I might want to sell them and take some profit have to see how much money it is.

Finances Day 3

Ok so I was wrong about the market being up today but like I said in the last blog we hedged our position so we ended up making money again today. The market numbers are odd right now. Interestingly enough today, the two of our long stocks climbed. I am going to call that luck for one of them. The other one was kinda a no brainer. But explaining why it was a no brainer in a heavy down market is a bit complex for this blog.

Today we hedged our position again. The numbers are not definative but if I were a guessing man I think the hedge is a little bit conservative. I really think we should have gone long exclusively. But then again there are some serious indicators that suggest that there will be yet another dramatic down by the end of the week.

What do I know?.... I just buy the stocks the algorythm projects.... Since 5 september 2008

45 stocks purchased
38 sold for a profit (average profit per stock is $441)
4 were purchased today
2 we purchased yesterday and are still holding them
1 we have held now for 4 days

So here is my guess .... Let me clarify first .... I was asked today if my position was that of the algorythm or a Tony opinion. The algorythm does not talk in terms of bear and bull markets. It does not indicate the index nor prices. The output of the model is just buy this or sell that. Our understanding of the market comes at the understanding of the correctness of the model. There are certain times that we just know if the model is correct or not. The model is 92% correct and with the elimination of certain days that number skyrockets to 98%. Right now the model is indicating that there are long and short stocks worth having. They are worth having in equal portion. I will say that energy levels of the model indicate a near peak position. However, I do not see the end of the maewest climb (I mentioned this before).... Moreover, there is an indicator I termed Tic-Tac-Toe from the model that strongly suggests shorts have played their role and longs need to reset them. So I am going to say the next couple of days will see up market followed by down market....

Hope you hedged your position today. If you haven't it may be too late.

The really cool thing about this whole limiting of financial shorts is that it has helped me get my head around the election.... And no I am not talking about who is the better canidate - ask me they are both terrible - the issue to me is why is the election so close. I think I understand.... In the next few postings I will try and explain both the election and the stock market as I see it. Most people won't like my answers.....

Finances

So on the 19th, I warned that the bailout plan could have some rough consequences....

The market was down today as we projected and oil futures climbed $25 (roughly 25%)

http://news.yahoo.com/s/ap/20080922/ap_on_bi_ge/oil_prices

I would project the market will be up tomorrow. The question at hand is where is the market going after that. We have hedged our longs by selling stocks short as well. I think you may have seen the top of the oil prices for now... we will have to see what the market does.

Laissez Faire is always the best policy, but only if you are concerned about the average guy. Intervention only helps those people 'in the know'. Don't believe me, go see how many Billionaires live in Russia.

Financial Markets

I haven't blog'ed in a long time but I cannot be quite about this any longer. The recent 'financial crisis' is bunk. After 3 years of studying markets using our algorythm I can only conclude that the weeks from 9/05 to 9/19 were nothing more than mundane market behavior.

How can I say that? First let's consider the conditions. From 9/14 until 9/19 the markets (When I refer to markets I mean specifically the NYSE -- ticker ^NYA) actually climbed 97 points. This climb lifted the markets to a 3 week high.

But Tony you say, "the market was in free fall for two days before the Feds stepped in and halted short selling". So let me explain. If there is any doubt to what I am saying, reference my facebook account, look at my comments regarding what I recorded my buys were for any of the given days. I have never posted this information to any account until this last week because I wanted the information to be available.

The market place - when measured properly - behaves in oscillatory behaviors. There is a method to detect this 'energy' level. In March of this year we perfected this detection. The confusion in the detection is a model that I dubbed MaeWest. In the MaeWest structure there is a series of falls (or climbs). Followed by an up (or down) motion in the market. This is when great concerns ring in our office. The second fall of the MaeWest is artificial in dollar function. Understanding the composition of the Index itself is critical in understanding what I mean by an artificial fall. Needless to say I do not intend to disclose how nor under what pretense we calculate these values (unless you have A LOT OF MONEY LOL).

At a certain 'energy' level of the second MaeWest it is critical to reverse your purchase from the direction of the market motion. In our case (and again you can see my decisions in my facebook account - time stamped). In our case we saw not only the ensuing climbs that occurred on the 18th and 19th of September, but we were actually able to select stocks that went long on the 17th and stocks that went short even during these tremendous falls and climbs.

So if I am so smart why don't I just make money off the knowledge and keep it a secret. 1. I did make money. My portfolio value increased 10% over the the last week alone and not all in shorts. 2. The intervention of the Feds may or may not have been needed.

Because I probably believe in quantum, I am not sure if what saved the market was the intervention or if the market had no where else to go and the intervention was ineffective. I tend to believe the latter is true.

What ever the case is reality, the limit of short selling of financial stocks scares me to death. It is my belief that unnaturally altering the market leads to greater volitility at later dates (which btw is good for me but really bad for you).

Here is my point. I bought long when everyone from NPR to Obama to McCain to Bill Orielly were saying we were in a crisis. Because I went long I made huge profits. Luck - you say. No, go back another week and you will see I also called a short lived up. Our method has correctly called these changes in actual trading since Jan of this year - through automatation since March with 100 percent accuracy. Even scarier, tested against historical data, it has caught the situation every time for 10 years. So either I knew the Feds were going to halt short selling and create bad debt groups or there is a mechanism for the markets to maintain equilibrium (albeit volitle).

If you can accept the equilibrium arguement, then limiting shorts is tantamount to removing predators from ecosystems. Get rid of cats around a barn and see what happens to your rat population....

Happy stock hunting...I will go out on a limb - I would say Monday is mixed or down. Our model told us to get out of the market. I am really reaching here but I would project 1 to 3 weeks of moderate growth (primarily due to limited short selling - money has no where to go). Our model only provides with determinism 1 day out. There are overlying trends though and that is why I am willing to reach out so far in my GUESS. More importantly, I would expect to see a run up in commodities as money exits the market (there are no shorts to play). This means higher oil prices. Hold on to your wallet. What do I know? I am just a Physicist who perfers to work in garden and read and study evolution.... Don't trust me, trust your financial advisors LMAO