MON 09AUG2010 02.40GMT

There was a lot of information value in developments on Friday; the employment report, the consumer credit numbers, price action acreos various markets being focused on at present. All worthy of discussion, which I am probably only going to do a tiny amount of, because I found an article that, for me, touches on everything that happened on Friday, and more.

Random Musings about Forecasting and Decision-Making
http://cssanalytics.wordpress.com/2010/08/05/random-musings-about-forecasting-and-decision-making/

Whether you look at purely quantitative forecasts or “expert/guru” forecasts, they have one thing in common: they rarely change their opinions or methods in light of new information.
Ask a person to give you an opinion on where a market is going, and then notice what happens when the market goes dramatically the other way along with news announcements that seem to conflict with their thesis. Most of the time this person will tell you that they have not changed their mind, and in fact that it is an even better price to buy (or short). Models or systems suffer from the same problem–they typically do not adjust as conditions or regimes change, nor do they observe their own profitability as a cue.
It means that discretionary traders should pay attention strongly to evidence that invalidates their initial hypothesis and be willing to even reverse their position entirely.

That’s enough of the quotes; the link is there to the whole article.

I am assuming that anyone reading this blog can understand and appreciate what the article is about. If not, you are on the wrong blog dude.

Which brings me to my current bugbear – the focus on deflation. I am thinking that while the US might be in for a deflationary period (might!) the loud and persistent focus on it is a function of large bond funds wanting to take profit on some of their long bond holdings and sell into a willing, rising market. Based on Friday’s trading … WRONG!

30-years were up, 10-years were up, ag commodities were down ( mainly), equity indices were down (a little). Maybe I am just early 🙂 … if so, check out this comment I found related to the above article:
As a wise man once said, “Being early is indistinguishable from being wrong.”
http://systematicrelativestrength.com/2010/08/05/when-the-facts-change/

Bugger!

BTW, just on this: “Being early is indistinguishable from being wrong.” This has got to be particularly relevant to traders, especially if you get a margin call, right? Timing is all. (And if it isn’t, its close enough to approximate to being all).

OK – so where to from here? Maybe I will STFU a bit on the deflation rants (at least until I am a bit more confident on my timing).

The S&P500 (as seen through my lens of the ES) is still running on under the resistance. Is it absorption? I just don’t have a strong enough opinion … I suspect it is, BUT … I am erring on the side of thinking that the resistance will hold for a while longer. The particular ‘model’ that I use to get a handle on my outlook for the ES over coming days and weeks is telling me it goes down a bit from here (please note, again, I am not calling for an apocalypse, the next 100 points will do for me, at the most … and in this instance I am not even sure it is the next 100 points.) BTW, my ‘model’ IS adaptive to change, keeping with theme of this post, so check in regularly as my view changes in response to market feedback.

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