The only reason I entered Monday without a hedge was because the mean reversion algos for $SMH inside Stocklabs flagged oversold. The only other time this algo flagged OS this year was 4/19/24, with the $SMH at $199. Over the next week it soared to $218 before pulling back.
How does it work and why does it matter?
It matters because the fight between fear and greed is evergreen. The patterns in behavior we see today were the same 100 years ago. Hence if you could encapsulate those emotions via a technical reading crossed against some effective backtesting, you can quite literally predict the future. Like all things, nothing is full proof and paradigm shifts often negate mean reversion algos. However, for the most part, risk is akin to a rubber band being pulled back to its maximum potential before being let go and the object inside of it propelled forward with violence ($SMH is +3% today) or it snaps and prices collapses, like we saw during COVID.
The lesson in this is price action tends to be predictable up until the point when something changes, materially, such as a war (2022) or financial crisis (2008).
If you enjoy the content at iBankCoin, please follow us on Twitter
