Stock market has its worst week since June

[Nova78]

Stock market has its worst week since June | Comcast

The stock market is closing out its worst week since early June after the first round of U.S. corporate earnings reports failed to get investors excited.

Major indexes closed little changed on Wall Street Friday.

The Dow Jones industrial average managed a gain of just two points to close at 13,329 after spending most of the day slightly lower.

The Standard & Poor's 500 lost four to close at 1,429 and the Nasdaq composite fell five points to 3,044.

All three indexes are down at least 2 percent for the week, the biggest weekly declines since early June. Banks fell after Wells Fargo missed analysts' revenue estimates.

Falling stocks outnumbered rising ones nearly two-to-one on the New York Stock Exchange. Volume was slightly lighter than average at 3 billion shares.

Shit, at least the private sector is doing good, Foward on Obama.......

 

[waltky]

Granny says its the calm before the storm, Wall St.`bout to blow up again...

Dow nears all-time high as eerie calm sets in
February 16, 2013 - Where did the gut-wrenching, roller-coaster-type price swings on the Dow go? Market volatility is at its lowest level since 2006, as an eerie calm descends on a market making a run at all-time highs.

The stock market isn't nearly as scary a place today as it was in 2008 when investors were subject to daily roller-coaster-type price swings that resulted in acute bouts of money-related anxiety. In the past 14 months the stock market has been eerily quiet. Aside from its steady and highly publicized rise to five-year highs, the market has been downright boring.

Indeed, the Dow Jones industrial average's frightening and violent mood swings have leveled off dramatically. Its manic-depressive behavior is M.I.A. Those big intra-day market moves that cause fear levels to surge and make Page One news — such as the 500-plus-point plunge in September 2008 when Wall Street titan Lehman Bros. filed for bankruptcy or the nearly 1,000-point swing in a matter of minutes during the May 2010 flash crash — have been few and far between.

It's as if the Dow is under the influence of mood-altering drugs that smooth out the peaks and valleys and foster a more investor-friendly steady-Eddie-type trading pattern. The sleepy calm, ironically, comes amid a period when the Dow is also behaving as if it is on performance-enhancing drugs as it climbs within about 200 points of its October 2007 all-time high of 14,164.53. "Last year was the quietest year since 2006," says Fane Lozman, chairman of Scanshift.com.

How quiet? In 2012 the Dow posted intra-day swings of 200 points or more on just 29 trading days. That was the fewest since 2006. And far below the hair-raising year of 2008 when the Dow gyrated up and down 200-plus points during a record 173 trading sessions. The so-called quiet period was due mainly to a sharp reduction in the "fear factor," as worries of a double-dip recession in the U.S. and a Greek financial meltdown receded, Lozman says. The market calm has continued in 2013, with only one session suffering a 200-point swing. The cause of the market calm and what it means for markets is a hot topic of debate on Wall Street.

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[JimmieD]

Markets go up and down at random. I wouldn't put much significance in it.

 

[EdwardBaiamonte]

Markets go up and down at random. I wouldn't put much significance in it.

perhaps that is somewhat true in short term, but only in short term. Markets are very logical; if not our entire economy would always be in deep depression.

 

[JimmieD]

Markets go up and down at random. I wouldn't put much significance in it.

perhaps that is somewhat true in short term, but only in short term. Markets are very logical; if not our entire economy would always be in deep depression.

Even over longer time horizons the best model for market movements is a random walk with a drift.

 

[emptystep]

The Dow bounced off 14,000. It will take a little correction as people grab their gains. If the second run breaks 14,066, look out above. The correction off the new high might be as much as 1000 but the trend is a very strong up.

 

[william the wie]

Markets go up and down at random. I wouldn't put much significance in it.

Actually no. When the current form of the EMH was being put together in the 1960s Paul Samuelson was pointing out that downturns of greater than two Standard deviations happened 8% of the time instead of the 2% required for a random walk. Since this is just shy of 94% correlation with the Random Walk model and permits effective asset allocation in a portfolio the error normally does not usually cause problems for prudent investors and aids in shearing the sheep it depends on how you apportion investments whether it applies to you.

But the Efficient Market Hypothesis is in its, I believe, sixth incarnation so I don't find it profitable to assume it is true. Good luck to you.

 

[JimmieD]

Markets go up and down at random. I wouldn't put much significance in it.

Actually no. When the current form of the EMH was being put together in the 1960s Paul Samuelson was pointing out that downturns of greater than two Standard deviations happened 8% of the time instead of the 2% required for a random walk. Since this is just shy of 94% correlation with the Random Walk model and permits effective asset allocation in a portfolio the error normally does not usually cause problems for prudent investors and aids in shearing the sheep it depends on how you apportion investments whether it applies to you.

From my own measurements, I think stock prices are most closely modeled by

Y[t] = a+ b*Y[t-1] + u[t]

Where b=1 and u[t] is an error term whose variance is leptokurtic. The best predictor of the future price of stocks is today's price plus a drift component and some error that will on rare occasion exhibit a severe multiple sigma move. There is no other model that comes even close to modeling stock price movements.

I'm calling it a random walk, but the error term in the model does not have a gaussian distribution; instead, it's fat tailed. I don't think this is actionable information though, unless you follow Nassim Taleb's methods.

But the Efficient Market Hypothesis is in its, I believe, sixth incarnation so I don't find it profitable to assume it is true. Good luck to you.

The only random walk model I know/use is the one I've measured. Good luck to you as well.

 

[william the wie]

Markets go up and down at random. I wouldn't put much significance in it.

Actually no. When the current form of the EMH was being put together in the 1960s Paul Samuelson was pointing out that downturns of greater than two Standard deviations happened 8% of the time instead of the 2% required for a random walk. Since this is just shy of 94% correlation with the Random Walk model and permits effective asset allocation in a portfolio the error normally does not usually cause problems for prudent investors and aids in shearing the sheep it depends on how you apportion investments whether it applies to you.

From my own measurements, I think stock prices are most closely modeled by

Y[t] = a+ b*Y[t-1] + u[t]

Where b=1 and u[t] is an error term whose variance is leptokurtic. The best predictor of the future price of stocks is today's price plus a drift component and some error that will on rare occasion exhibit a severe multiple sigma move. There is no other model that comes even close to modeling stock price movements.

I'm calling it a random walk, but the error term in the model does not have a gaussian distribution; instead, it's fat tailed. I don't think this is actionable information though, unless you follow Nassim Taleb's methods.

Actually I so use a variant.

But the Efficient Market Hypothesis is in its, I believe, sixth incarnation so I don't find it profitable to assume it is true. Good luck to you.

The only random walk model I know/use is the one I've measured. Good luck to you as well.

Try the Browne variant of the Modigliani portfolio and use a limited amount of the cash component to do LEAP Taleb hedging of the other components. It really reduces volatility for the portfolio as a whole and more importantly transaction costs of rebalancing.