Oh Multivac, What Art Thou?

I mentioned investor sentiment in yesterday’s post.  That got me thinking.  What exactly are investors sentimental about these days?  There’s all this talk about oil.  If everyone is shitting themselves over oil, then the correlation between oil and stocks should be oozing prophetic prowess. At the moment, however, it’s on precarious, attenuated footing.

In fact, all binary correlations are on precarious, attenuated footing, contextually speaking (will get to this qualifier below).  Why?  There has been a changing of the intellectual guard my friends; that’s why.  Our lens for viewing the market is different (maybe evolved, though human fuckery remains incorrigible), and with that different lens comes different decision-making.  A decision-making that is based on an infinite continuum of variables that human intelligence can only fathom with the augmentation of modern computing power that has become ubiquitous in the first world.  Gone is the classical age type viability of binary correlations (e.g., gold vs. dollar, bonds vs. stocks, oil vs. stocks, etc.) to predict future market prices and trends.  It’s not that easy anymore.  We live in a time dominated by algorithms built on top of each other ad infinitum until the resulting digital-simulacrum-clusterfuck, a.k.a, the market, is an unknowable, amorphous, constantly changing, Multivac -wannabe. The modern Multivac-wannabe-market spits in the face of universality, and, instead, fully embraces relativism, especially as it pertains to truth.  There is no absolute truth to be had without a frame of reference.

There are scenarios where correlations run high and broad based (August 2015, January/February 2016). When algos run on top of algos trying to interpret qualitative and quantitative data, they can create unrecognizable price action, spike volatility, and snap signification chains that run up correlations and relegate market participants to slaves to their psychology and sentiment. Either this is symptomatic of instrumentation in the current age and we do this to ourselves, or maybe it’s the work of our overlords, knowing full well our reactions and we get played like thinking Obama wasn’t about this life. Either way, we must adapt, see its cyclicality, and contextualize the narrative.

So what the fuck are we to do with this unknowable beast that is the market?  We keep it simple-stupid.  Don’t overstate your reads.  You are kidding yourself if you think you know exactly which stocks will move, how much they will move, how long they will move for.  You don’t know where the market is going, or the underlying mechanisms that cause it to go there, with any type of high degree of certainty.  You simply can’t.  Accept that ignorance.  That’s step one.  Step two is go back to the basics (i.e., price-action, volume, support, resistance, elementary fundamentals) and sprinkle in some sentiment and good ol’ trader intuition (sorry, but you need that intuition to survive).  Use the basics/sentiment/intuition to construct and test narratives to get a small edge on the house, which is all you can hope to get, and hammer that small statistical edge recursively until lots of coin is banked. Build in some allocation strategies, comport oneself sanely, and mitigate risk (at what price (action) is my read wrong?).  It is sufficient to feel a reasonable level of confidence that the group of stocks belonging to a sector you feel good about will trade higher in the near term future.  That’s a realistic read with a realistic level of specificity/generality that can work in an unknowable-multivac-market.  Picking one stock, at one price, for too narrow a time frame – especially if misallocating your hard-earned funds- is overstating your advantage.

Welcome to stock-trading in the 21^st century, where if we want to survive, we accept that we can only glean itty bitty micro-truths (in relation to other relative truths) about the market at any given time to try and be successful. Since this is next generation intellectual guard-swapping, you need to explore an adaptive environment and responsive community engaging the market in these ways. Navigation tools here, iBankCoin TradeLounge, and here.

So adapt or perish meat-bags ’cause Skynet is online and ready to take over.

P.S. Besides correlation studies through software platforms, this bare-boned, free correlation coefficient generator tool may be worth a look.