Friday, November 21, 2008

Quick Takes for a Bear Market Friday

* Finding an Analogue - People have compared the current market to other bear markets, including 1987, 1974, and even the markets of the 1930s. I find it interesting that many of those comparisons implicitly equate the current year with the years in which past bear markets made ultimate lows. In many ways, the current market is acting like it did in 1973, which was the one year since the 1960s in which huge numbers of stocks making fresh 52-week lows did not lead to intermediate-term rallies going forward. We stair-stepped down in volatile fashion, and did not see an ultimate price low until late 1974. It's the inability of the market to find buyers and sustain rallies even amidst extreme weakness that is most troublesome about the current market.

* Do Bonuses Work? - Thanks to an alert reader for noticing this New York Times article on how incentives can actually lead to poorer performance. When we want something too much, our need interferes with our performance--something we see when traders too desperately need to make money.

* Lowry's Perspective - Excellent market overview from Trader's Narrative.

* Insider Buying - It hasn't been a good indicator of late, but interestingly it's been rising considerably as the market has weakened and now is at post-1987 crash levels, according to the excellent Sentimentrader service.

* Finding Market Themes - MarketSci follows up with a look at the relationship between SPX and the Consumer Discretionary shares.

* Extremity - Quantifiable Edges takes a look at how extreme this market really is.


thenotpoet said...

1974 is eerily similar in price structure. I would recommend people go to yahoo charts and look at that time period.

Ryan said...

Re: Bonuses

Similar results were found (albeit with slightly different circumstances) in other Behavioral Econ literature (Gneezy and Rustichini, "Incentives, Punishment, and Behavior", Chapter 21, p. 572 in Advances in Behavioral Economics. They found that Israeli students who are offered a small reward to raise money for a charity do worse than those who are offered no reward. However, performance did improve close to the no-reward level for a much larger bonus.

This is a great blog. Keep it up Brett!

Brett Steenbarger, Ph.D. said...

Thanks for that reference, Ryan!