In essence then, weak hands are selling supply into strong hands like they did in February and August of this year.
Very good. Find a guru immediately and take your vows.
You say that price can't meaningfully move away from ET flow but what does "meaningfully" imply?
It's a good point. Clearly, that depends upon what ET flow is, and how it is assessed. Without getting into long winded algorithms and technical details, it means market actions where there's conviction. For example, if I place a market order to buy, I think price is attractive and more probably will rise than fall, and if I place a market order to sell, I think price is unattractive and more probably will fall than rise. People have conviction mostly because they think they know something about the entity in which they're transacting. The integration over all transactions in that entity represents the market's intrinsic expectation for that entity. Price can diverge from intrinsic expectation due to changing elasticities wrt marginal demand and marginal supply. How is this possible? Sentiment. Emotionalism. Ignorance. I want to know the true state of affairs outside of this emotional noise and its effects. The relative degree of divergence between the truth and what fear or greed does to price provides the definition of "meaningful".
If there's a 15% correction from the highs, is that meaningful?
Indeterminate. Price does not predict price. Acting on divergence between emotionalism and truth gives a positive expected return. There is no degree of divergence that is properly actionable. At first order one can act when a divergence starts turning into convergence, but when is "starts turning into" significant? Requires a measure of second order effects whose amplitude are below detectability. That's the same decision as the one for "meaningful". I have learned through experience that the change from divergence to convergence or vice versa is good enough.
Do strong hands ever cry uncle?
No. Before then there's no one to whom to sell. The game is closed.
On a somewhat related note, what do you think of Martin Armstrong's Economic Confidence Model?
I am a mathematician and theoretical physicist, not a charlatan. If you want to know what I'm working on in physics, I'll tell you, but I won't comment on numerology nor on nonsense. Consider the below excerpt that he wrote. If you think that has any value, or that such stuff has any business in the 21st century, then I take back my above mentioned recommendation.
"The total number of days within an 8.6-year business cycle was 3141. In reality, the 8.6-year cycle was equal to p (Pi) * 1000. Suddenly, there was clearly more at work than mere coincidence. Through extending my studies into physics, it became obvious that randomness was not a possibility. The number of variables involved in projecting the future course of the business cycle was massive, but not completely impossible given sufficient computer power and a truly comprehensive database. The relationship of 8.6 to p (Pi) confirmed that indeed the business cycle was in fact a perfect natural cyclical phenomenon that warranted further investigation. Indeed, the precision to a day appeared numerous times around the world in different markets. Both the 1994.25 and the 1998.55 turning points also produced clear events precisely to the day."
Well, I will say that he and Taleb may get on famously. |
