Asymmetric Market Risk:Reward
Markets
Studying multidisciplinary fields such as computer science, psychology, and sociology has provided a valuable background for our times. This diverse knowledge encourages a constructivist approach, emphasizing the active role of learners in building their own understanding and making connections with the world around us.
What better representation of this than the markets?
I recently heard that the polymath is a dying breed in our world, just as AI is emerging. This development seemingly refutes the death of the polymath and now forces everyone to step up—to make eclectic linkages of ideas and perspectives. It also rewards those with managerial experience in getting the best out of people and managing them. These skills will be crucial as we now find ourselves managing our intellectual capital alongside a series of bots.
Speculation
During both Canada Day and Independence Day this week, I looked forward to indulging in projects, including reading books and consuming media on the art of speculation, poker, and chess. This got me wondering who will continue to cite all the great works on speculation from the past 100 years, beyond the typical recommendations.
I pay homage to some of the greatest market speculators, who have dedicated themselves to applying science to understand what many would consider inconceivable in the market.
Science
On July 4th, I postulated that an edge in trading can be found by participating in markets when high-frequency traders (HFTs), the vigorish, and news catalysts are not driving the market. At these times, the market is slower and behaves more ‘neutral,’ which may accentuate what people perceive to be randomness. On the contrary, with the correct overlay, it is highly probabilistic.
The abbreviated hours of trading on July 3rd and July 4th, combined with the confluence of an open CME and global equities activities, may create clear inter-market signals for the astute speculator. Additionally, the absence of day traders, who exited later on July 3rd, rewards and favors the courageous who can synthetically replicate a buy-and-hold strategy.
The S&P 500 closed at 5537.02 on Wednesday at 1 pm EST, with SPY 0.00%↑ at 551.46, . This early closure was due to the Independence Day holiday, with the market reopening for futures sessions, followed by another abbreviated closure for the CME futures.
While you were away, during futures trading sessions, the market approached and set new All-Time Highs (ATH) with high probability, albeit at a slower pace. Now that the market is open again, the pace has accelerated. This prompts consideration of today—Friday—and the dynamics of the closing.
Let’s see if the courageous who have held will benefit from a intraday market range expansion that could establish a more significant all-time high, potentially exceeding +20 points from the open.
*Given the current market conditions this week, there has been a bid in tech stocks like Tesla and Nvidia, which have shown strong performance, while manufacturing stocks are under pressure. There is also anticipation surrounding the Non-Farm Payrolls report and Federal Reserve minutes.