Sunday, June 26, 2011

2011.06.26 Silver Long $ Short Term


Anonymous said...

Hi, this is Zero_Sum from Daneric's. I find it so strange that silver will skyrocket from 2012 to 2013, but gold will crash from 2012 to 2013. I suppose there's no arguing with what the computer software tells you. It would be interesting if you could tell the readers an brief introduction on how you discovered this model, and how it has aided you during historical events.

I gotta admit, when I look at the DJIA chart I am in complete disbelief. A decline of this magnitude would imply I would be unemployed for the next half a decade, and the Great Depression will look like a walk in the park.

Paolo said...

Zero_Sum, thanks for your feedback. I find it pretty strange as well. With these structural equation models, the price error is proportional to the magnitude of the length of time measured from the beginning of the time of the last data point. On a short term basis, on the order of 6 months or so, the gold and silver models correlate reasonably well. I suspect as new data points are added to the models, the long term price curves will also begin to correlate.

I have a background in science and statistics, along with a strong interest in remaining solvent. I introduced myself to business cycle theory ten years ago. I owe a lot to the following people, and I've left quite a few out because of space considerations.

Dewey and Dakin (1947) Cycles, the Science of Prediction.

American Economic Association (1944) Reading in Business Cycle Theory

Burns and Mitchell (1947) Measuring Business Cycles

Dewey (1970) Cycles - selected Writings (Foundation for the Study of Cycles)

Richard Arms (1983) Volume Cycles in the Stock market)

David Williams (1982) Financial Astrology)

Cooley (1995) Frontiers of Business Cycle Research

Zahorchak (1983) Climate - The Key to Understanding Business Cycles

Dewey, Burns and Mitchell were working in an era of calculators and not computers. However, the techniques are timeless, and I have adapted them to retrieve cycle information from financial time series using a set of parallel computers to minimize the time required. It does require quite a bit of CPU time.

The DJIA chart is quite remarkable, but given we seem to be at the cusp of a major drop, and the cusp is when these models are the most accurate, I thought it was worth sharing.

Anonymous said...

I appreciate the detailed response. Hope to see you around the forums more often.

flaunt said...

It would be very interesting to see a model of the SPY to see if it correlates with the DJIA chart. If so that would give more confirmation to the findings since it would be hard to imagine a scenario where one would go through a serious decline without the other following.

Are you shorting the Dow based on this chart?

flaunt said...

Sorry I think I posted my comment on the wrong chart. I mean to post it on the DJIA chart.

Paolo said...

flaunt, I put up a cycle model of the FTSE ALL-SHARE (FTSA)with data back to 1800. I hope that answers your good question!