Dow’s Attractor Level over the past year
Since December of 2014, I have been tweeting that the Dow will orbit around an attractor level around 17,300…
“Dow is in what I see as stable part of weightless orbit around 17,200… waiting for Fed communications”
— Edward Lambert (@wisegrowth) December 17, 2014
“Dow heading toward attractor zone of 17,200 to 17,300 that I have been seeing… “
— Edward Lambert (@wisegrowth) January 14, 2015
Here is what the Dow has done since then until just a moment ago…
The red line shows the attractor level that I have been seeing. Why did I see this? The economy hit the effective demand limit in the 3rd quarter of 2014. I knew the market could not go much above that level due to a profit limit. I sensed that the economy would slide along the effective demand limit. I sensed that the economy would at least hold onto that level. And I knew that monetary policy would stay accommodative. I knew there would be a correction at some point, but that the market would rise back to the attractor.
When the Dow was around 16,700 on September 17th, I tweeted…
“Now we will see if the Dow goes up to my 17,300 level of attractor state…”
— Edward Lambert (@wisegrowth) September 17, 2015
A month later…
“The Dow has finally topped the 17,300 level that I see as its attractor level. It can rise above this level but not too far. Dow now 17,365”
— Edward Lambert (@wisegrowth) October 22, 2015
With the Fed signalling a rate rise in December. I am now re-assessing the attractor level. The important factor is how consistent the Fed will be over time lifting the Fed rate.
With interest rates rising and earnings falling exactly what is going to drive the market higher?
You are right on… the issue is actually if the attractor level will drop, not rise. But how sensitive would the market be to any drop in a baseline at the moment? For instance, let’s assume that the attractor level would drop to 16,500. Couldn’t that be too low for the market? Wouldn’t it just create a psychology that a slump is happening?
The DOW is not tied to any lasting reality.
Its movements are like that of a large flock of birds. It’s line of flight appears to be orderly but a single bird can move diagonally a little and if a few more birds follow it then the entire flock appears to abruptly veer off in that new direction. These abrupt changes in direction can go on for minutes at a time. Why did that first bird move diagonally, lack of attention? Unknowable. Why did a few birds immediately follow, inattention or some feeling of affiliation? Unknowable. Why does the entire flock eventually become immune to small movements of any small group of birds. Unknowable.
Stock prices generally move up on good news but lately we have seen them move up on bad news. (If the economy turns down then the Fed will not raise interest rates. Whoopee, buy now.) The only lasting truth is that when a stock attracts more investors, the stock price goes up and vice-versa. Thus the news lately is of indictments for spoofing!
The movements of the DOW are dependent on the movements of a certain number of individual stocks and thus no more likely to be tied to the real economy.
So why should I care whether the DOW appears to be stable or to move up or down, if my primary concern is the health of the economy?
“Fooled by Randomness” by Nassim Taleb should be required reading.
The whole year I watched the Dow go up… then go down… then go back up around the attractor level. and I kept my eye on the larger picture. The key is to not get caught up in the individual movements within the whole pattern. I knew with some confidence that the market would orbit around the attractor level. The pattern is not as random as one might think.
And yet… the Dow does have a pattern. And the pattern has a reason. Reason is Knowable…
In a storm, winds blow wildly shifting… but the storm itself moves in a certain path…
I was a beekeeper… a swarm of bees moves as a group, but each individual bee looks like it is going its own way…
The key is to see the macro movement guiding the whole… and then acknowledge that individual units will not move as the whole, but eventually with the whole.
Edward wrote: “And yet… the Dow does have a pattern. And the pattern has a reason.”
I hear you. I believe that you do see a pattern. The question is whether the pattern is a mirage.
“I knew with some confidence that the market would orbit around the attractor level.”
Your attractor level must have been down around 14000 in 2008, then first the DOW dropped to about 7000 inn 2009 and then rose slowly to about 18000 in 2015.
Do you have a graph of your attractor back to 2007?
I did not have an attractor before. Only for the past year as a consequence of the new ideas with effective demand.
Nice short squeeze is coming. Can’t have artificial selloffs anymore than buys.
Overall profits are still pretty good. But the acceleration of wages means the big profits are done this cycle as every cycle before it.
Perhaps your attractor calculations are somehow tracking the likelihood of stock buy backs?
There is a very good article on todays (11-13-15) GlobalResearch.com Select Articles: Corruption, Debt, Serfdom that explains a lot of things…Hope you can take a minute to read it.
What did the Dow end at today? … 17,245?
Where will it go now? A little down? A little up?
Traders get nervous when stocks trade in a narrow range. They make money on volatility. I expect some volatility within the month.
What would have been your attractor rate in Oct, 2007?
How about in March 2008 after a Fed Rate cut of almost 50%?
An attractor only has value as a prediction.