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S&P Price Oscillator Is Three Standard Deviations From Mean: 99% Outlier Market
Sentiment Trader's Price Oscillator reading just went off the charts. Earlier, it hit a value of 72%, an 18% increase, and a number which falls between two and three standard deviations from the mean: a 1% outcome assuming a normal distribution.
As a reminder the price oscillator is a very common, reliable technical tool used to measure trend and probabilities of reversals. Most, if not all quant systems, use some sort of variation, mostly more sophisticated and timely, but based on the same idea. In essence, the indicator demonstrates that if the market move is too fast, it is not sustainable, unless, of course, Central Banks and the G20 promise to never stop printing money. Ever.
For those who want a recap of the technical implications from an extreme price oscillator reading, here is a summary from Sentiment Trader:
When the Price Oscillator reaches an extreme, it often marks short-term exhaustion in buying or selling pressure. We generally use readings over 59% to indicate an excessive amount of buying pressure (particularly when in a longer-term downtrend), and readings below 41% to indicate that the selling may be overdone (especially when in a longer-term uptrend). This indicator works especially well within defined trading ranges, and will give a false signal (likely becoming very extreme) when a trading range is broken and a new trend begins.
Statistical overview:
- 68% of readings (1 standard deviation) should be between 41% and 59%
- 95% of readings (2 standard deviations) should be between 32% and 68%
- 99% of readings (3 standard deviations) should be between 23% and 77%
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Tyler - Rationality has nothing to do with it. We need to make the market rise! Everyone is gonna be rich!!!!!!!!!!!!
I can't wait for the $100 Big Mac. You think they'll re-issue the $1000 bill with Obama on it?
When are the bills coming out with Geithner's name on them?
Those aren't gonna have a $.
They're gonna have a Global Currency Unit symbol. Probably something akin to a globe with a decaying atmosphere that must be repaired immediately...and a GCU somewhere.
I would like to think that Bernanke will be on the $1000 bill so I could wipe my ass with him every day.
He's on the trillion dollar bill already.
Something didn't feel right today, now i know why.
somewhere someplace someone is saying I never thought we'd be this close to a repeat of a time prior to WW2 where folks were so disgusted and disheartened that they felt it necessary to look for a culprit.
Fed is in desperate mode, they have forgotten the meaning of sigma on all fronts.
I'm RICH BIACH! LOL I used to laugh when I calculated anything outside 68%. Just goes to assist in proving what a fantasy land we are living in. This thing is gonna shit all over its self one day.
as long as there's free drinks
http://www.youtube.com/watch?v=1x_QbVDlLbI
Can we hit up it's dosage on Vitamin C to bowel tolerance sooner than later?
As long as some Zinc accompanies it so the effects are maximized.
Your faith in mathematics is amusing.
Zzzzzzzzzzzzz
Here's Benny back in the day... all aboard the Crazy Train:
http://www.youtube.com/watch?v=JRbPWcLode0
Question regarding the following:
So, doesn't that mean the trading range has broken to the upside? Cause the new trend surely doesn't seem to be down. Not that I agree, just wondering how you would actually interpret that info on the indicator.
Perhaps the prop desks are setting up for a 6 standard deviation event.
We just ain't there yet.
Great question:
Think of measures of sentiment as being most valuable / useful when their readings become ‘extreme.’ Simply put, measures of cyclic activity and collective sentiment are best utilized as secondary or tertiary confirming factors to other various indicators/oscillators that serve to directly measure, track and/or attempt to lead price (mostly in coincident fashion).
When large, outsized readings print across various measures of collective sentiment, technicians use these values to help weigh the possibilities of either an acceleration of or a reversal within underlying trend; effectively, this is how the vast majority of technicians employ measures of sentiment. Typically, large stochastic readings and outsized data points across similarly trending momentum oscillators help a technician ascertain the likely direction of an index / issue for at least one larger degree of trend. This is why they often cite extreme market internal readings within the NYSE TICK, the ADD, the VOLD, the VIX and/or the TRIN as having "kicked-off the next leg of ..."
The pitfall of many well-known measures of sentiment, often not explicitly addressed, is that such lagging or coincident “indicators” simply do not provide much, if any, help toward the actual trading issues of timing, execution and management; but this is not their intent. Rather, by the very nature of their design, measures of momentum within collective sentiment, which are frequently referred to as “sentiment indicators”, are merely meant to provide technicians with a quantitative filter to help them qualitatively diagnose the comprehensive technical position / posture / profile of an index / issue, via a function of its momentum. This is what so-called “sentiment indicators” really are.
Most folks simply take a gander at an indicator, read a basic Wikipedia or Investopedia description, make a bold, blind assumption or two and then claim to know why XYZ was up / down yesterday; this only further muddies the already collectively murky waters of technical analysis. Hats off to you reading, for simply asking: ‘hey, what does this sentiment indicator actually mean?’
The vast majority of traders who follow such qualitative barometers of collective sentiment still tend to fall victim to what Constance Brown has termed the “Stochastics Default Club.” As George Lane writes within page ix of the foreword to Connie's seminal work, Technical Analysis for the Trading Professional:
"In a theme she returns to frequently, she kids the "Stochastics Default Club" - both the uneducated public that accepts the default values in software and tries to use them to trade without a clue as to why and the educated but lazy trader who knows better but does it anyway."
Our latest ZH article, “Four Basic Qualities of Great Technical Indicators & the Stochastics Default Club,” defines this loaded term that points squarely to today’s incessantly repetitive and insultingly comical commercials from discount-brokers-disguised-as-charting-platform-providers; which, between nearly every other Prime Time network program and professional sporting event, tell us that it is ‘so easy to buy stock’ that even a baby can do it; never mind the fact that it vomits upon itself merely seconds after having clicked ‘buy.’
Borrowing from our experience as design developers of proprietary technical indicators, we at Fibozachi detail the “fixed period drop-off effect,” the differences between various moving average methodologies, the true nature of the term “fractal” as applied to the structural composition of trading systems, “the four basic qualities of great technical indicators” and a practical nuance within stochastic calculus that can help you anticipate what others are about to think.
It won’t enable you to build your own system tomorrow and it won’t help you make money trading the next day either but hopefully it will help you develop a greater understanding of how to evaluate technical trading indicators while also highlighting several nuances of proprietary design development that most folks overlook.
Hope that helps a bit. If you still have questions after reading our work, please email us at Fibozachi@Fibozachi.com and we’ll do our best to answer them for you.
Looks like irrational exuberance to me... Maybe too much "punch" in the bowl?
can computers be irrationally exuberant?
This just in from Marvin:
"Oh goodie, another eranium pu36 explosive price oscillator, isn't that wonderful, now we can blow up the earth!"
"Where's the kaboom? There was supposed to be an Earth shattering kaboom?"
http://imagecache2.allposters.com/images/pic/ATA/21501BP~Marvin-The-Mart...
I've said it multiple times, don't bet against this market, u'll only get burnt.
Too Big to Fail is Too Big to Exist -- Sign Bernie Sanders petition right now, before you do anything else.
http://sanders.senate.gov/petition/?uid=c53f1aca-5881-403e-928b-a25980cb...
Done, and done!
It is easy to do. So do.
Like I have said numerous times, the market will take out 14,000 so that Warren Buffett can cover his bet.
This is statistically wrong on every level. To use a normal distribution to draw conclusions, you have to assume that you have independent readings for the price oscillator. Which i clearly not the case (the oscillator has trends). You can only talk about normal distributions in the relative change of the oscillator (from one day to the next)(I i doubt it normal even then). Just because the oscillator is high doesnt mean it will mean reverse since there is correlation between observations. It could stay there for a long time. Simple correlogram would confirm the trending of the oscillator.
That's just for today.
Just 4 trading days ago, everyone was predicting a crash. Put/call ratios were going through the roof, and we had a -1200 TICK reading in 6 out of 8 trading days.
Heck, even Mc"Huge" was predicting the SPY to eventually go to ZERO!!!
I told them this was a Wildebeest market. They wouldn't believe me.
Robo,
Thank you for all of your posts.
I have copied them locally. I will paste and revisit in a few weeks when all your predictions come true.
I know you think AMZN at 180 will be our Christmas Gift. Thank you Robo!
You also helped me understand DOW 16000 is the only way before the end of the year - anyone who thinks otherwise gets "CHOMPPED".
Thanks again for your insight. It will make me rich.
:-)
This is statistically wrong on every level. To use a normal distribution to draw conclusions, you have to assume that you have independent readings for the price oscillator. Which i clearly not the case (the oscillator has trends). You can only talk about normal distributions in the relative change of the oscillator (from one day to the next)(I i doubt it normal even then). Just because the oscillator is high doesnt mean it will mean reverse since there is correlation between observations. It could stay there for a long time. Simple correlogram would confirm the trending of the oscillator.
I once asked God to make me a millionaire.
I should have known...
goddam monkeys paw.
What about a longer term chart of the oscillator?
I would like to see how it behaved at the March lows and back in Sept. 08.
thanks!
Sorry. Posted on wrong thread. My bad.
What does 4 standard deviations mean?
This site may not be for you.
Please check out www.CNBS.com and look--you can now get Mad Money Mobile updates!!! http://www.cnbc.com/id/30392049
That's not nice....but funny. I LOL'd.
Very funny. Didn't you know this is a "no baiting" zone?
Its all in and its anyone's guess when they decide when the river card will be dealt but I fear soon.
since when has the fed given any clues about their moves?
lmfao since never
one morning you are going to wake up ES futures down 60 and the USD starting a multi-month rally to 85+
and if you are long....you are toast.
You cannot turn an aircraft carrier on a dime.
True, but it can sink or go up in smoke pretty quickly.
Unfortuantely, Kenny, Shanky and EW folks are feeling the toasty on this side right now...
alright, uncle, how the hell do you post functioning URL's in the comments section?
I've tried all the HTML tags I know without any luck and cannot find an FAQ, so I'm going to ask here.
Simple old chap; just join ZH and create your account. Get out from under your BPB...
awesome looking chart
What is missing from the wildebeest photos is that the river they are racing through is thick with giant crocodiles. Many will be eaten alive but the herd will survive.
And on that note:
"It's been really fun and I liked your posts, you had some great insights. Too bad you didn't make it out alive, huh? But it's just life, and the rest of us are doing fine for the moment, and we'll catch up with you on the other side."
I figgur you gotta say these things while you still can.
cougar
What is missing from the wildebeest photos is that the river they are racing through is thick with giant crocodiles. Many will be eaten alive but the herd will survive.
Applying rational analysis to an irrational market is in and of itself irrational.
One must ask at this juncture if insanity is part of the "hope & change" strategy embraced by the Obama administration? After all this administration is justifying the destruction of 99% of the US populations standard of living by stating this will allow them to create manufacturing jobs for 2% of the aforementioned population.
Only the fringe lunatics are getting this one right going forward. Rational expectation is any more the sign of a sick mind and anyone really thinks they have a handle on things is just plain crazy.
cougar
What do you mean "unless, of course, Central Banks and the G20 promise to never stop printing money".
Haven't they already promised to do that?
Sad thing is, this is all the stupid sheeple in this country care about, there 401K's going up.Not realizing that they won't be able to buy a wet moldy loaf of bread with a months salary.
So when do we think the Fed will implement its swap strategy from last year to slow the dollar decline? It set up a 538 Bn USD swap agreement with other CBs in august. That way they got the dollar propped up a bit without overtly monetizing debt.
At what reading of the DXY will this be done again? 70? (Casey Research discusses this in the October Casey Report, pretty interesting stuff). That could maybe be the catalyst that finally stops the dollars great decline (for a while)?
Today, these swaps have been reduced to 50Bn, so they still have some dry gunpowder in this respect. And the international disrespect (almost a rhyme there) for the Fed in my opinion, is not yet so low that this can't be repeated. Any opinions on the matter?
Ummm...why would anyone (other than retirees) want to prop the dollar?
Right now the U.S. is getting free televisions and oil (in exchange for rectangular pieces of green paper) and exporting enough airplanes to bankrupt EADS. Explain the upside of a $5Tr - $12Tr deficit with a strong currency.
You've got the function / logic of the CB Swap Lines inverted; they effectively help other CB's satiate their own $ denominated responsibilities / liabilities. When the $ breaks back above 81, Eastern Europe will be squeezed again, hard; above 84 makes the PIGS squeal!
This is when the next gargantuan round of Swap Lines will be greatly expanded by the Fed / BoJ to help meet the growing foreign demand (read: effective illiquidity) and we will be told, once again, that is to "ostensibly prevent price shocks on the open market ... blah blah blah."
Only the Fed and the BoJ will be left standing.
No Problemo!! You just need to convert to being a believer in Mishkinomics.
..."unless, of course, Central Banks and the G20 promise to never stop printing money. Ever."
They basically promised just that yesterday.
Dow 36,000 here we come!!!