We are told time and time again that you can’t predict the market. And time and time again people try to predict the market. Many model the market using stochastic principles, and use it to predict the market. I find this completely amusing (stochastics is about multiple destinys based on a single context.)

TraderFeed a favorite blog of mine had the following to say (Are We Making a Bottom).
There is both the sense that we could go much lower in a washout (a “Black Monday” scenario) and that we could be seeing …

Well, I was right (see Wednesday’s post). That at least feels good. However, I thought the market would make a decent recovery. I had raised my limit price to $51.20 (from $50.20) yesterday, realising the recovery was probably not going to be as strong as I wished.

However, when I logged on tonight (it’s after midnight in Australia), SDS had already moved up to $53, and as I watched it shot towards $54. I got out the calculator, changed the volume and bought in just as it crossed $54. As I hit refresh now, it is in the mid $54s, heading back down.

Just a quick note to say I think the market has had its major top.

I am going to wait for a pullback tomorrow (Wednesday 25th July) and have an open order to go short SDS at $51. Hopefully this will get filled in the next day or two.

The consumer is tapped out. After consistent 25 basis point increases to the Federal Funds Rate, we are finally starting to see the effects on the stock market.

Yesterday morning we saw three headlines that caught my attention. The first detailed Sears’ guidance for this quarter – a reduction from $2.12 to from $1.06 to $1.32 per share. These revisions are, at best, a 30% reduction and, at worst, a 50% reduction from their previous optimistic estimates.

Notably, declines were across all categories. If you follow the theory that the consumer is on thin ice, then it is hardly surprising to find big ticket items are not being purchased. Sears is having trouble selling new stainless steel fridges and widescreen TVs because consumers do not feel confident about their financial situation. The only sector that wasn’t hit as hard was women’s apparel and footwear – suggesting stressed housewives may be engaging in retail therapy.

I’m writing this one directly into the blog, and with any hope it will go up before market open today. Let’s what we have on dee plate.
AMGN
Notes from late last week: “Stoch sell. MACD still strong. I think this guy is recharging.”
I’ve since changed my theory from “recharging” to “dropping”. It’s looking bleak for this guy short term. 30DMA is providing resistance and Stoch and MACD are signaling sell. Lots and lots of support at $52. And although it’s well below my MOS of $65, I sold my 60 share …

I was reading a blog entry on CPPTrader that was referencing an article from Bloomberg. I am a newbie with respect to trading, but with respect to AI I have been a few times around the block. It was something that I studied in University and have had an attraction to for a long time. I guess I am lazy and would love to write a program that “thinks” for me. As a sidenote I am using AI in my algorithmic trading software, but in a different context.

Colin brought up the following point:
Christian, it is extremely interesting to read your thoughts on neural nets. I’ve been looking at Neural Nets in a piece of software called Merchant of Venice – http://mov.sourceforge.net/ . Beyond that, what’s interesting is that as humans, we can look at current day situations and have an innate sense that history is repeating itself, yet there are these outlying situations that break those rules – like Amazon’s recent performance.
How to put that “sense” into code and avoid getting burned by the outliers is …

Tom gave a reply that I think deserves more attention. Tom made the following comment to one of my blog entries.
One more thing, if the market is random per the stochastic process and you can’t find patterns in a market where patterns don’t exist, then why do we have trends? A trend is a pattern in my opinion.

If you look at the definition of stochastic process at wikipedia it does not say random as in completely random walk. What the definition is saying is that at each and every point …

Tom wrote the following comment:
Christian, great article! I was building an ATS myself but had to put it on the back burner. Do you dabble in neural nets and AI modeling as well? I predominately use YALE, an open source data mining, machine learning software to build currency, futures, and stock models.
This helps me identify emerging market trends and trade (discretionary) accordingly.

Yet another mega-private-equity take-over. This time its KKR buying FDC for nearly 30 billion dollars. I look at this deal and wonder how it is going to work. Business Week thinks this is a great deal.