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The week's question
In December 2024, in the thread "Re: BRK: Why Not XOM?", BreckHutHigh asked the members: "What about the long road trips with kids?" This week it is put to everyone again. The button below opens the small thread re-asking it - read what others have said so far, then give your own answer as an ordinary reply.
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Investment Strategies / Mechanical Investing
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Author: anchak   😊 😞
Number: of 6131 
Subject: Bottom Score
Date: 04/05/25 7:07 PM
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First of all : These are trying times in markets - and I dont want to add to any confusion. This is purely an analytical discussion which I am hoping will add to your thoughts.
If its confusing - stick to your own or follow Jim's writings. Additionally, the scores of Bearish confirmational signals have been going off - I will provide a separate compendium of those - so this is a risk-filled discussion.

WHAT : Bottom Scoring Ensemble.
SINCE WHEN : Out-of-time ie Post Discovery performance since 2016.

BACKGROUND: Inspiration for this effort comes from Jim. I have followed and read all his posts on the Detector since the throes of the financial crisis. I think it was sometime in '09-'10 when he mentioned he was using a statistical model. Well - that piqued my interest! Of course intent and getting to something useful took years - and hence it was only in 2016 when I rolled this out for myself. While there's always learning on the way - the models themselves are UNTOUCHED *which is very important to avoid look-forward bias.

HOW THEY WORK: Its a suite with 3 layers

(1) The Core models: Theres 3 - (a) Days to Bottom (b) Binary Estimate (c) Ensemble Estimate.
The first one is curious : I never expected it to work, and definitely not in the way it did. ( try not to get embroiled in it. just know its a zoner ie it'll converge near ie just before and typically immediately after a bottom. It rarely get the estimate RIGHT on the bottoming day!)

The other 2 are the 2 main components - alongside there are 2 rulesets - Major Bottom check and Trigger CALL

Trigger call follows the same idea which Jim has mentioned time and again - in a cascading ( and current one being vertical) sliding market - CALL is the first day - at least one of the estimates are outside of the Warning Zone. Major Bottom - a bit misleading ( but I guess I was feeling supremely confident when I coded it!) - is simply how fast ( so 2nd degree) it gets out of the zones - this is basically a very strong reversal requirement ( ie it'll not really happen at the very bottom by design)

IMPORTANT: These models really mark a short to medium term tradeable bottom - so outcome window is not as long as Jim's without the other layers.

FULL TRANSPARENCY: Here's the entire OOT signalling history :
dropbox.com - Bottom Scoring

And this is the visual of it:
https://www.dropbox.com/scl/fi/x5o9gxnp8sr9469k08n...

One of the KEY learnings for me was : The potential usage of the signals are time variant ( statistically a bit non-stationary) - In a Bullish environment you take the Maximal Warning signal ie Prob % threshold(Look at the Continuous estimate and the Greenish-Yellow bars on the bottom ribbon. The index is also painted) - because you can depend on the "Buy the Dip" horde. In a Bear - you absolutely wait for the turn in the estimates. You will of course take it in the chin on the first round in this method ( ala 3/12/2025!)

Also : CONFIRMATION - Confirmatory signals are separate - and this is critical in a bearish environment - as I had mentioned before the 3/12 was non-confirmational.

(2) Bottom Category Classification:
https://www.dropbox.com/scl/fi/k2cxlgs2bwwp0fj7may...

This is actually based on a familiar concept and would be eerily similar to what platykurtic posted ( that feed is included in this). Ethos for this comes from a seminal post by Zee ( IIRC '-07-'08?). So it looks at various metrics around Stocks Highs & Lows percentiles ( not just the H and L) for various constituents

NET MSG : Category 1 Bottom ie Initial. This is NOT GOOD NEWS - you can see these have a habit of cascading ( of course this happening within a Bull you back up the truck!). I am with Jim here - there will be more ie more pain - and circles on the chart and bottom ribbons will start to fill out completely. Weirdly, divergence works on this - ie the very bottom typically the signal count is lower ( Happened many a times)

(3) Pre-requisites or so called Necessary but NOT Sufficient signals. These are mostly my own. So I will provide a surmise - 50% there! Mostly still non-confirm on capitulation.
Shocking to me really - of course the discourse on Friday got it very close but not signal level.

Here's the snapshot of the entire Bottom Scoring table this time round:dropbox.com - Bottom Pic

NET MESSAGE : I am slightly hesitant here -from an extreme O/S standpoint everything is screaming - yet I feel there's a large crowd which simply believes in HODL (?) - ie because they are attuned to the indices simply snapping back - COVID being fresh in their minds I guess.

I am going to look for a fulfillment of all pre-requisites or at least 80% of them.

Hope this helps!

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