Are there Relationships between markets and trends?

[OzWaveGuy]

I thought I would start this thread and post a series of charts over the coming weeks that highlights the relationship of market action (or inaction) with Social, Technological, environmental, Political trends etc. For example why are some things unpopular now (eg K Rudd) when they were immensely popular only a few years ago? and are there some relationships that can be established to better understand those trends.

For example, on the smaller time scales (eg in days) some of you will remember sometime back on one of my postings I showed that corrective action on the XAO could be accurately predicted by simply watching the responses of a particular thread on the ASF. This "thread" signal usually provided warning from 1-3 days in advance of impending corrective action or a change in trend on the XAO. Here's an updated version of the chart...



This particular thread was negative towards the XAO, hence as extreme pessimism became apparent in the minds of ASF members - this pessimism played out in the thread - the index would then change direction. Interestingly enough, there were only about 18 people posting in the thread - a very small sample, but enough pessimism to provide an early warning of market action - in the opposite direction.

Hence, looking at extremes in various trends (including the financial markets) can provide additional insight to future directions. Understanding the time scales that are at play with different trends is important also.

More later...

 

[tech/a]

Interesting and an astute observation.

The property thread has been bearish since inception---I wonder how that fairs?

 

[Gringotts Bank]

Excellent work. I had a similar idea using Hotcopper a few years back but I lacked the technical know-how to make it work. My idea was to use a web data miner to capture key words such as "!" - which signifies +ve price action, and "potential" and "reasons" which signify -ve price action. HC didn't allow me access. Is there a way around this?

The length of the posts (number of characters) is inversely proportional to price action. Strangely, the number of posts in the humour section seemed not to be correlated in either direction. When people post "reasons" why a stock "should" go up, that was highly indicative of -ve price action to come.

May I ask how you did this? Did you use Excel or a web data mining software? Sentiment is a special interest of mine. This is a step up from TA. Great stuff.

 

[OzWaveGuy]

Excellent work. I had a similar idea using Hotcopper a few years back but I lacked the technical know-how to make it work. My idea was to use a web data miner to capture key words such as "!" - which signifies +ve price action, and "potential" and "reasons" which signify -ve price action. HC didn't allow me access. Is there a way around this?

The length of the posts (number of characters) is inversely proportional to price action. Strangely, the number of posts in the humour section seemed not to be correlated in either direction. When people post "reasons" why a stock "should" go up, that was highly indicative of -ve price action to come.

Analytics and data mining technologies are really hot right now as businesses want more insight to customer behavior so they can better measure success and predict cash flows. However, you won't need to invest in such expensive technologies if you can find a thread that is deliberately pessimistic or optimistic on a particular topic. Discussion threads do tend to have a limited life, so once you think you have something it can disappear overnight.

May I ask how you did this? Did you use Excel or a web data mining software? Sentiment is a special interest of mine. This is a step up from TA. Great stuff.

Just subscribed to the thread and counted the posts, then painted them on a chart.


I recall there was a recent article on someone/uni who had been able to predict the US stockmarket using search engines to identify certain words and terms. Not sure how successful they are.

Another consideration is:
You will need different inputs for different timescales. For example with that chart above, a correction signal is given by a posting in the thread - which is fine. But, how do we tell if the correction will go for much longer periods of time v's the other corrections that have taken place? We need something else that gives visibility at a higher time scale (eg weekly or monthly perhaps). Hence, discussion threads may not be useful with larger degrees of time - there are other indicators that could be - as we will find out....

 

[So_Cynical]

Perhaps the contrarian investors should be looking at the stock threads that receive the least attention. lol i suppose one contrarian stock picking strategy could be to find all the stock threads that are at least 3 years old and have less than 9 posts, and then work out the five with the biggest MC's...and put a few dollars on each. :dunno:

Could be an interesting exercise.

 

[OzWaveGuy]

You have probably seen expressions like "I don't understand why the market has dropped when the financials and future growth prospects look strong". In fact, there's probably a fair share of these types of expressions throughout the 2007/2008 decline.

So why does the market drop when there is no apparent reason for it to do so?

The answer is in the first chart in this thread. Extremes in optimism and pessimism indicate an imminent change in trend - in the opposite direction. The first chart above captures signals on small time frames. The exact same conditions exist on the larger time scales and can indicate imminent market moves on monthly or yearly trends.

Let's take a look at the Dow 2000 top. Let's say you were going to publish a book on investing in financial markets in 1999/2000 - would your content be bullish or bearish? Remembering that the mood at the time was an optimistic extreme - esp in Tech stocks. If you had published a bearish book do you think you would have made record sales? Unlikely - in fact the appetite for pessimistic content was at an extreme low.

As you can you see, the desire was for even more optimism with books like:

• Dow 36000: Published Nov 2000
• Dow 40000: Published Jun 1999
• Dow 100000: Published Sep 1999

As with the first chart on ASF postings, the same is occurring on a much larger time scale with different types of media such as books, newspapers and magazines. It would be fair to assume that books tend to operate on larger time scales than newspapers and magazines as it takes time to research, author and publish such content. Nevertheless, the effect is still the same, an extreme has occurred and it's worth taking notice.

 

[motorway]

nice charts

OzWG

have you ever looked at this guys work

http://www.marketsemiotics.com/about_woody.cfm

I intend to get around to reading his book

http://www.amazon.com/Behavioral-Trading-Measuring-Confidence-Expectations/dp/1587991640

You might find it interesting

some outline here

http://www.marketsemiotics.com/triunity_mood.cfm

Motorway

 

[OzWaveGuy]

have you ever looked at this guys work

http://www.marketsemiotics.com/about_woody.cfm

Thanks Motorway - i'll check out the website. If you get the book, wouldn't mind your opinion on it. Cheers


In the previous post some examples of optimistic books published at the DOW 2000 top. However, in contrast, only 3 years later investors were divorcing the DOW - again at the wrong time.



What does this really say about the so called "experts" that the masses listen to? It's fine when the bull market is in an obvious run, but near the end many of the "experts" are all in - and this is the problem - if nearly everyone is "all in" who is left to buy?

It's a catch 22
Most will not listen to pessimistic views when the mood is at an optimistic extreme when everyone around you is screaming "buy" - the crowd simply wants more optimism. It just not human nature to listen to a lone voice in the crowd until it's too late.

Wrong Decision at the Wrong time
What do most companies do in a recession? They downsize. When do they downsize? Usually near a major bottom or near the start of a major bounce. Downsizing near a major bottom is probably the wrong time as you would soon want to ride the next wave of optimism up. If your business requires a significant ramp-up then you may soon find you'll be competing for skills as the bulls dry up the talent.

Ideally you'd want to start to downsize near a major top or when major projects come to a close (sometimes prematurely due to contractions in the money supply).

The A380 Darling
Qantas invested in the A380, ordering 12 aircraft:

2006: Qantas orders 12 more A380s

and then,

2009: Futuristic jets put on hold by recession. ......Qantas's decision yesterday to defer buying four of the $350 million superjumbos has raised questions about whether the planes it once described as an aviation revolution would survive the economic downturn.

Having crowed last year about being among the first airlines to buy the A380s, Qantas has now become the latest in a long line of carriers - others include Air France, Lufthansa and Emirates - to defer, cancel or reduce the role of the aircraft.

Qantas will also defer orders for 12 Boeing 737-800s and is discussing with Boeing a delay in the delivery of the first batch of its 787 Dreamliner aircraft......​

Looking at the dates - QANTAS has made the wrong decisions at the wrong time - Investing heavily near a top, and de-investing at a major bottom. In only three years the luxury A380 darling became an albatross around the airline's neck - not because of poor engineering, but due to poor timing that has probably led to wasted $Millions.

The airline industry creates some very significant signals prior to major tops - that we shall soon see....

 

[OzWaveGuy]

If you ran an airline, you could be forgiven by wanting to analyze the bull/bear market relationships with major shifts in airline technological progress and luxury. Such analysis may show a corresponding release of luxury aircraft is occurring with major market tops. Unfortunately, your peers at the board of directors meeting would probably not join in conversation with you.

Perhaps Boeing saw this relationship and "delayed" the 787 Dreamliner which is now scheduled for delivery in the 3rd qtr this year. Boeing have probably fared better by avoiding a release of the 787 at a bull market top, just when Airbus released the A380 only to see numerous order cancellations over the last few years.



In 1969, the run up of the space race saw Apollo 11 land on the moon in July of that year with a cluster of major aircraft releases and test flights - signaling the prior excesses have run their course.

Discussion threads, Book releases and major Aircraft investments have something in common - signaling a change in market trend at different degrees of time scale. Other signals can include changes in Fashion and interest in Vegetable Gardens.

If the release of the 787 is scheduled for 3rd qtr, does this signal another top? Like the 747 in 1969, the A380 went in-service with Singapore airlines approx 2 weeks before the start of GFC at the 2007 top.

When the airline industry is in blue sky and cheering at the new advances in flight, perhaps market risk, stops and new opportunity should be closely reviewed.

 

[OzWaveGuy]

The timing of technological advances, Social interactions, Books and major airline deliveries to the financial markets also lends itself to the political arena as well.

For example: Kevin Rudd became PM at precisely the wrong time - at a historic optimistic extreme. One only has to look at the DOW 2000 post above to see what books were being published at the time, they were precisely the wrong ones. Rudd may have been the right 'book' but at the wrong time in the cycle. Perhaps the next 'cycle' will see him a new role at the UN.

From the 2007 top as pessimism became more inherent and continued to grow, Australians arguably wanted increasingly precise and controlled actions by a strong leader to tackle the complexities of a GFC and a rapidly shrinking Government budget. Rudd didn't last the distance and Gillard is now plagued with a similar set of problems. Could the leader of any other party have fared better? Unlikely, the optimistic extreme in 2007 evaporated quickly and any leadership would have been contentious.

The Green Machine
The rise of the Climate Change agenda also fits into the social extremes seen in the bull and bear markets. For example, in the 1987 to 1992 bear market, a large amount of back room activity occurred in the environmental space: Media picked up the pace of reporting on Climate change, the IPCC was established and the UN Agenda 21 was established in the remnants of a bear market.



However, after 15 years and $80B of PR, Climate 'Science', climate activation of NGOs and the like – The Climate establishment had failed to seize the opportunity to enact this investment into the aggressive climate change policies documented in the draft Copenhagen Treaty.

Here's why: In the run up to the 2007 top, a growing optimistic mood was developing and the “green” agenda was seeing only small pockets of resistance from a few scientists and bloggers – hence, the time to implement the green Copenhagen policies by the establishment should have been before the October 2007 Top and thus leveraging the high optimistic extreme.

In the 3 years since then, the backlash on climate change has grown to unprecedented levels. The result: Vicious attacks across the internet blogsphere and intense pressure applied to the IPCC, Government climate departments, NGOs, climate scientists and climate propagandists to substantiate the case for addressing climate change with taxation policies.

"Missed by this much"
Delivering a Carbon tax (in some form) should have been implemented while optimism was at a high and not while the pessimism grows. Put simply, implementing Climate Change policies is a mis-timed opportunity by the climate establishment. Forcing green taxes in this pessimistic cycle will be strongly resisted leading to further deterioration of Government credibility.

 

[OzWaveGuy]

Perhaps Boeing saw this relationship and "delayed" the 787 Dreamliner which is now scheduled for delivery in the 3rd qtr this year. Boeing have probably fared better by avoiding a release of the 787 at a bull market top, just when Airbus released the A380 only to see numerous order cancellations over the last few years.
....
....
If the release of the 787 is scheduled for 3rd qtr, does this signal another top? Like the 747 in 1969, the A380 went in-service with Singapore airlines approx 2 weeks before the start of GFC at the 2007 top.

When the airline industry is in blue sky and cheering at the new advances in flight, perhaps market risk, stops and new opportunity should be closely reviewed.

The European Aviation Safety Agency and FAA certified the 787 on August 26, 2011 - and the markets certainly haven't been "cheering" in the last few months.

The first 787 to be officially delivered to All Nippon Airways on September 26 (tomorrow). While the 787 starts to quietly roll off the production lines, my initial thoughts are: are we already seeing a repeat of the bear market action on the introduction of the 747 and A380? and will the 787 be a viable option for airlines in a GFC II?

I would suggest that the future of the 787 and it's viability in secondary GFC will be a distant concern for many as the next round of market declines is unleashed.

​

 

[waimate01]

For example why are some things unpopular now (eg K Rudd) when they were immensely popular only a few years ago?

Ah, that one's easy. Krudd's popularity is inversely correlated with how much we see of him.