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.

Following a brief thought exercise last night about a bearish read on the way the month of May could play out, I wanted to further contextualize this perspective below. Here are my thoughts:

• Overhead supply at the highs will act as resistance. People that bought the highs and got decimated in August 2015 volatility are awaiting a chance to sell, if they haven’t stopped out already.
• People who chased the Fall 2015 rally and got fucked January/February 2016 are awaiting a chance to sell, if they haven’t stopped out already.
• The visceral nature of the August 2015 and January/February 2016 volatility (I believe) still has people PTSD spooked. If you traded through that action, it was nauseating, unforgiving, rampant fuckery. It was a setback to augmenting interest in market participation on the long side. Cyclically people become sworn off the market (never again will I…), and either those people have already succumbed to either of the two aforementioned market drops and were removed from their shares via booked losses, or they are waiting for an attempt at breakeven to cut ties and move on.
•  Earnings season risks (see here)
• Indices starting to tag and commence riding of the upper Bollinger band on the daily charts and Stochastics getting overbought.
• OA (this man is fucking brilliant- too many links to post but check this one) has educated the iBankCoin community on the Mamis sentiment chart. At this moment, it seems to be tagging ‘Anxiety’ which should lead into May ‘Aversion’. I believe a good chunk of bulls sat this recent rally out, too spooked by the previously mentioned upticks in volatility. Now that we are approaching titillating news headline ATH fomo, latecomers who are induced to chase typically get fucked. If you’re in the camp that the market is setting up to top for good and an epic rollover and bear market commencement (I’m not), then sentiment could be gesturing towards an ‘Enthusiasm’ moment where we briefly clear the highs, suck in bulls, get sharply rejected, top out and reverse lower. Either way, downside ensues.
• The ‘sell in May and go away’ construct: Based on the way the 2016 market narrative is playing out, should this classical, dominant mode of institutional market engagement (selling at the end of May) be met with a market melt up in May conveniently and neatly in time for the struggling hedge funds (see here and here ) to bank coin and sell into strength before Memorial Day? Let me ask you a question. Does the market really work like that?

My prediction: May will induce shifts into low beta, fixed income, and treasuries (ARK). Volatility will have some minor spikes (nothing like August 2015 and January/February 2016), but the action will predominantly backfill. Oh, and we have the presidential election and pre-Brexit chicanery in the fold as well.

I am no expert, just a surviving trader working to improve. Formulating scenarios and market maps inform my approach. If you want to see some trades, I share swingtrades (good and bad) in realtime on stocktwits / twitter (also see results here).

Now that formal introductions are handled, it’s time to get to work.

The market is currently entering drift and shift mode. Following the relentless run-up in US equity markets, last night was a classic example of an event (headline risk/crude death) that rippled through indices abroad and was supposed to sink US markets, initiating a bearish bent, lifting volatility, and prompting selling. However, what seemingly should have happened (as packaged by the initial reaction) was replaced with a spurring of frustration on the side of bears, as bulls bid up indices above DJIA 18k. As bears increasingly throw up their hands amidst DJIA/S&P ATH nose clammers, the Passover holiday looms and volume dries up. I fully expect the DJIA/S&P to slowly drift higher this week into next, as volatility wanes and ‘coast is clear’ messages start to circulate among bulls. NFLX earnings bed shitting should prompt traders to shift into risk-off mode with the Nasdaq and Russell 2k being the first to lag and stall.

This week and next week should present a good opportunity to lighten up longs, find a burrito or 2 to make a late cycle run, and initiate shorts. The ark (TLT) looks set to have a great May. I strongly feel the month of May will be red, confirming the seasonal sell narrative. (The strategic preservation of dominant ideological market engagement constructs are instrumental in maintaining a classical narrative for market participants to put their faith in.) Beyond this, I am still awaiting more data points. I will soon share a 2016 outlook (for better or worse) that hypothesizes a scenario for the remainder of the year.

Formalities- the obligatory convention we partake in to feign niceties, yet the framework from which we situate subsequent acts. 

And so we begin, where one always begins, ‘in medias res’ (in the midst of things). No clean demarcation, no tabula rasa (Locke), no fresh start. We live straight-jacketed to a chaotic inflow of misinformation and misdirection. Signs pointing in every and no direction along closed feedback loop roads leading nowhere. Shitshow.

But wait…I’m supposed to make purposeful decisions to thrive while limping along this fractured foundation through a decimated landscape of phonies (angsty Holden), liars (extra Ted), and deformed sock puppets (mentally email-challenged Hillary)? The financial media/talking heads would sell short their own mothers for maintenance of perceived clout. Still worse, the political front is bastardized.

Yet, here we are today. Fly, the BlogFather, curator of worth in an infertile content-orgy world, has successfully raised a beacon of light to mayday’d bodies strewn across shores, seaweed noosed.  Assembling quality, results-driven bloggers and tools that reach down to lift you up from your incepted shoreline. A community of hard knocks that adds value and weaves through the muck and grime. A bastion of hope permeating the void since 2007.

I’m humbled to join the iBankCoin blogging community as a member of the PG. Privileged to grind in the trenches alongside men of worthy pursuits within the venerable walls of a storied institution. Shout out to OA, Ragin, Raul, and all PG contributors. Proud to be a speck of mass in the sinews of this tradition.

A formal introduction will follow.