Sunday, January 31, 2016

The Importance Of Understanding The S&P 500

"News, opinions, research all matter but really what matters is what the market is doing.  That's the bottom line, isn't it?" 

"How the market is reacting is a function of the news and analysis but is also a function of other factors biasing how people react to it.  Exposures, biases, emotions, peer performance measures, on and on, all drive stock market action."

"The only way to know what the overall read out is of all of these inputs comes down to something more simplistic, what's the market doing?"

"Do we start by understanding the inputs or the main read out?"

"Do we need to react to it or can we start to predict it?"

"There are ways to define the market by itself and its own performance using various methods and sequences.  As we developed models we've come to understand that all information feeds into the most followed market in the world, the S&P 500.  The S&P is what most correlations are based on meaning it is the most important read out, meaning it is the read out of all of its inputs."

"If you can manage to understand the S&P 500 you can manage to understand it's inputs in reverse."

"Our process of predicting the S&P intraday and medium term is a process to understand the patient itself and its symptoms, not only what the patient is saying.  What's s/he doing, not necessarily what s/he's saying."

"By understanding that moves are not so random and can be evaluated and predicted based on its own performance, one can better hedge and trade everything that feeds into it."

"In our history we've found that the single best respondent to model testing accuracy is the S&P 500.  It is over and above all other securities and futures probably because of its liquidity and volatility but also because of its correlation of 1, meaning all are related to it and so all need to follow it which is a critical dynamic."

"We believe that a critical component of portfolio management and trading needs to have central within it a keen understanding of the S&P 500 and its intraday moves, with an eye to not only react to these moves, but, rather to be in a position to predict these moves as an integrated component of one's overall portfolio management."

Chaim Siegel
Elazar Advisors, LLC

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