Sunday, December 08, 2013

Hulbert on: seeing bunnies in cloud formations

Mark Hulbert has an article at Marketwatch (link) with this eye-catching quote:
Leinweber views charts such as this one as an example of a potentially dangerous practice known as “data mining”— endlessly analyzing a database until you “discover” a pattern. The result of this practice is “the analytical equivalent of finding bunnies in the clouds

Traders, analysts, talking heads do it all the time. They might use it for forecasts, to "prove" manipulation, mostly for selling and promotion. What it often boils down to is seeing bunnies in clouds. Some may say that I am doing similar, and in part that is true. I see what I believe are repeated patterns and trade based off them.

The catch with the charts in the article are that the scales are not similar. The 1929 chart has the market booming from 200 to 350 a 75% up move on the part of the chart shown. Yes, the current stock market rally has moved up that much and more off the lows, but the part that is supposed to match is a much more modest move.

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