“why isn't this arbitraged away?” Of course one can attempt to capture the difference between whatever arbitrage version one can imagine. BUT, what happens when they all are going down, S&P futures, S&P, DJI, CAC, DAX, etc, etc? Arbitrage will only keep them relatively synchronized, all the meanwhile investor index portfolios are just losing value. Furthermore, look at it from the opposite, why didn’t arbitrage keep the markets from rising dramatically from 2016-2018. Arbitrage doesn’t keep the markets stagnant, they move according to investor sentiment.
If you were trying to arbitrage relative pricing errors between indexes, that would be the kind of behavior that keeps their movement in line with each other. However, if you can reliably forecast a large price fall across the stock market, it is equivalent to saying that all of them are mispriced (specifically, all of them are too expansive). Of course, there seem to be cases where people won't take advantage of this as you pointed out, or where not enough money is put into doing just that. On the other hand, the point is that
if enough money is put to take advantage of it, their prices would fall sooner and the forecasting power you had would be undermined.
The issue is not that I really believe in market efficiency. I don't. The issue is in part that your suggestion seems simple enough to implement that I don't see why it would still work.
And if you think one can learn EW from youtube, you are seriously mistaken.
That was a figure of speech and, no, I do not have an in-depth knowledge of how Elliott waves are applied. All I know is that you point to long term wave-like patterns in stock market prices. It might have some tricky aspects to implement, but I don't see how even an average person wouldn't understand the gist of it. More to the point, I have a hard time seeing how you would pick up these kinds of things, but not enough hedge funds would pick it up to kill your forecasting power. Absent conclusive evidence that it worked in the past without cherry-picking and hindsight bias, that argument makes your argument hard to swallow.
Quite a bold and rude statement based on such little information. I’m just getting started.
It is neither bold nor rude. Generally, people who claim to be able to time markets are wrong. It's not personal and I apologize if my post conveyed anything like an aggressive overtone.
I don’t agree it’s a price signal. I don’t agree TA doesn’t work and I don’t agree EW is TA.
I used both concepts liberally and loosely. My sense is that you're using parts of long term price movements as a way to make a forecast. In terms of statistical filtering, we'd call those movements a signal. And I related it to technical analysis because Elliott Waves only rely on price data. You may use different words. It's unimportant.
I think 95% of TA’s don’t know what they're doing and there are very few Elliottists’, but to deny TA doesn’t work is denying all the success of hedge funds, investment banks, and high-frequency trading who are significantly dependent on TA.
The academic literature on active management offers pretty dim conclusions. The vast majority of those funds are not better than a passive investment, enough so that you could make a genuinely solid case that successful managers only exists because you have enough people trying that you're bound to draw a few good decades-long runs. It's a perfectly sane opinion to have. Nassim Taleb's coin flip argument is a laymen's version of that view.
A more nuanced point of view is that if you assume there are big hurdles to making good forecasts, you end up with a potentially very narrow set of people who can profit from inefficient pricing patterns. This would make the aforementioned tests have poor power against the null hypothesis that active management is useless. The first view looks less good when you dig into some detailed descriptions of various events or the fact that the best managers all miraculously happen to be extremely sophisticated and smart: Jim Simons, Edward Thorp, Warren Buffet... They all did different things, but there is no doubt they're inordinately smart and work with other smart people all year round to turn a profit.
When I talked about a prior, I was talking in the sense of Bayesian statistics. Every time someone tells you something works in investment, you should assume it doesn't until they show you extremely compelling evidence to the contrary. And if they didn't do their homework, the next best thing is asking whether it's plausible not enough people picked up on what they see.
