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Strategies & Market Trends : Playing the QQQQ with Terry and friends. -- Ignore unavailable to you. Want to Upgrade?

To: Don Green who wrote (4527)	8/10/2007 2:27:28 AM
From: Walkingshadow	Respond to of 4814

Hi Don, Actually that's not true. There are a number of misconceptions about the market, IMHO. This is one for sure. There are others, e.g. "sell in May and go away." I couldn't begin to imagine people responsible for multi-billion dollar portfolios casually taking 3 month vacations and ignoring the markets. Furthermore, major reversals can and do happen during these months when supposedly nobody of any position of responsibility is manning the shop. A recent example was just 1 year ago, when the market bottomed in the latter part of July after a medium-term correction. At that time, QQQQ reversed impressively on big volume and went on a 1 year tear, gaining a full 40% from the July 21 low of 35.70 ($35.62 intraday) to the $50.32 high ($50.66 intraday) made on July 19 of this year. Sell in May and go away? Sure didn't happen last year..... they were buying like crazy in July. There are other examples, this is just a recent one fresh in people's memories. Regarding August being more volatile, the table below clearly shows otherwise. In fact, if anything, the opposite is true. Of the last 22 years, August was less volatile than the average for the year 15 times. These volatilities refer to price volatility, not more typically used measures of volatility such as the VXN, which are indirect, and hence not as useful. These volatilities were calculated be taking the absolute value of the difference between the HOD and LOD, dividing by the average of the two, then expressing as a percentage. I first averaged the volatilities for each of the last 22 years. Then I averaged the volatilities for each August. Finally, I averaged the volatilities for all months of each year except Augusts. These averages are listed in the first, second, and third columns respectively in the table below. The p values were from paired 2-tailed T tests. None of the p values is significant, and there is not even any trend towards statistical significance. The clear conclusion is that there is no difference between Augusts and any other month of the year in terms of volatility. The real reason we are seeing substantially greater volatility has nothing to do with people taking vacations. The real reason is because the market is bottoming here and is about to rally. Major bottoms are always characterized by a marked increase in volatility, and in fact that sharp increase in volatility is an important signal, IMHO.