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Minyan Mailbag: Stormy Weather


Couldn't stand the weather, eh Stevie Ray?


Editor's Note: Minyanville is a community of people who share an interest in fiscal literacy. As perspective is an important aspect of our daily routine, we share this exchange with hopes that it adds balance to your process.


You have spoken in recent days how the context of what you are seeing has grown to negative. As you look back in the past, has what you look at been in this position before, and does it mean the variables are in place for a break but that it may not happen, or is it usually a precursor to fall happening and it is just a matter of time?

Minyan DG

Minyan DG-

In the breakout session at Ojai in which Scott Reamer and I discussed complexity Theory and using point & figure as a contextual backdrop, I made the analogy that right now conditions are favorable for a thunderstorm... but that this does not mean a thunderstorm has to occur. Just as in weather forecasting, there are many variables that can influence how, or even if, an actual storm will occur once the conditions for one are in place.

One of the most important points Scott made in his presentation was that once his model lines up to suggest the probabilities of a potential turn, the moves of the market AFTER the initial set-up act both forward and backwards in time to influence the probabilities on an ongoing basis.

This point cannot be emphasized enough. Because, as human beings, our brains are best suited to think about things occurring in a fixed, or linear manner, (for example, If A and B occurs, then C follows) we find it very difficult intellectually to latch onto the reality of negotiated financial markets, where the action is not linear.

According to the point & figure indicators I follow, there have been three previous occurrences since January 2004, not including the present conditions, where the conditions were favorable for a potential equity storm: March 2004, July 2004, and December 2004. I don't believe in inevitabilities, I believe in probabilities, so while the conditions are again favorable for a storm, how one handles preparations is tied in with specific advice that we believe isn't fair to offer in Minyanville since it should be based on an understanding of very specific and unique circumstances that cannot (and should not) be generalized.

Be that as it may, there is a tremendous advantage in knowing that the conditions have changed, and what they are. Most have no idea whether it's 72 degrees and sunny in the market, or 45 degrees and raining.

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