Market Anthropology: There is no plot for Je Ne Sais Quoi

Wednesday, March 19, 2014

There is no plot for Je Ne Sais Quoi

Over the past month since the 1929 analog made the rounds on the likes of daytime television, we’ve been asked by several readers for our opinion or rebuttal of the broader criticism levied against comparative analysis. The main reasons we’ve kept our thoughts to ourselves was – a.) it wasn’t our work;  and b.) we didn’t share the sentiment expressed in the comparison. To be honest though, we don’t really spend much time focusing on what the skeptics and pundits think, because their opinions are often made before you can even try to open their eyes to another perspective. Ironically, it’s their own cognitive biases – based on their previous experience with other comparative “research”, that leads them to form an opinion the second they see two asset trends overlaid on one another.

Does it frustrate us at times when an ignorance is more broadly slandered? Definitely. But if there’s one thing that Wall Street projects in its echo chamber, is ego and the notion that if you don’t practice at the alter with certain conventions – you’re a heretic (we prefer mystic). Moreover, if its not strictly empirical or presented on a scatter plot, it’s quickly deemed spurious by the high priests in finance. What do you think this is a social science? Conversely, we actively use correlation and regression analysis in determining different asset relationships that can lead to a better understanding of a market. However, just as any self-respecting artist doesn’t paint by numbers, for appraising the more qualitative essence of a market – there is no scatter plot for je ne sais quoi

In the past three years since first creating Market Anthropology in March 2011, we have strived at presenting both compelling and accurate market research by incorporating our unique blend of comparative perspectives into our work. What has been the unifying constant between these different and varying timeframes, scales, periods and assets? The refrained observation that our invariant behavior in the market does not change much despite the asset class, scale or time period. We have found repeatedly that our reflexes and emotionalities are remarkably self similar and scale invariant. With that said, if it’s a Rembrandt you seek, you will not find it hung on these walls. We practice impressionism. I.e. we don’t day trade.

We approach comparative analysis from a different point of view than most. We typically do not start our work from correlations in price, rather triangulate a market through several different perspectives – such as momentum, intermarket relationships and historic asset trends. Like most methodologies applied in the behavioral sciences, it is a moving target with an ever shifting backdrop to appraise. We view markets through a qualitative lens that reflects on both the quantitative framework many participants perceive and the physical reflection of underlying market psychology.

We form perspectives based on the belief that although the markets on a day-to-day basis may flutter with all the uniqueness of a random walk, over time will tend to conform to a collective market psychology that travels a rather defined behavioral continuum – irrationality included.

Is it the holy grail or the Rosetta Stone to unlocking the market? Certainly not. Anyone that actively participates is bound to be offsides, downed and tackled throughout the game. But applied with a balanced perspective and qualitative rigor, the methodology can provide a greater depth of view that has helped us remain on the right side of many different markets through the years.

Stepping off the soap box, precious metals are presenting an interesting juxtaposition sailing through another Fed decision this afternoon. The retracement window we had thought could open this week – has obliged,  and we expect it should be closing going into the next.   

To accomodate for the greater nuances provided by the 60 minute series, we normalized current positions to the momentum profile of the historic Nasdaq chart. Often times, and a function of being scale invariant comparisons, we will estimate a bearing and work with the current market as it navigates a prospective pivot on the profile. More critical for us in the series is the impression of the pivot as reflected and contrasted in their respective momentum signatures. 

For further information regarding our thoughts on precious metals, see:

Still Waters Run Deep 
Mining for Gold