Patterns, Predictions, and the Correlation Fairy

In November 2009 I noticed a pattern—the S&P 500 index was tracing out a pattern that was uncannily similar to the S&P chart exactly six years previous.   In the four years from April 2009 through April 2013 the average difference between the S&P 500’s closing value for the same day 6 years previous was 3% and the yearend values were within 1.6%.  Using this correlation I …

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Software & Stock Exchanges—Not Skynet Yet

A week after the Nasdaq’s 3-hour shutdown in August 2013 the exchange published Preliminary Findings on the outage.   I’ve extracted some sentences: On August 22, the Securities Information Processor (SIP) received more than 20 connect and disconnect sequences from NYSE Arca, each of which consumed significant resources. Available capacity was further eroded as the SIP received a stream of quotes for inaccurate symbols from NYSE …

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When an Index Becomes a Security

Update A comment on this post from “~”, writer of the Volatility Futures and Options blog, revealed that in this post I made the mistake of assuming that correlation meant causation in analysing the data—a danger I warn against in Patterns, Predictions, and the Correlation Fairy.   It’s too bad, it was a fun story.  I’m not beating myself up about it, but it illustrates the …

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The Double Dip is Dead, but What About Volatility

March 9th marked the 3 year anniversary of the current bull market.  The S&P 500 has scored an impressive 110% run-up, and I think we can officially declare that the dreaded double dip recession didn’t happen. However for the buy and hold investor there isn’t a lot to celebrate.  We are still 16% below the S&P 500’s 2007 peak.  Not including dividends a January 1, …

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