Hi YXI friends,

Housekeeping: I am travelling on Monday, March 30 - Wednesday, April 01. Our ML Signals will be uninterrupted, but I won’t be writing daily briefings on these days. If you’ve been to Florence, you would forgive me.

Today, I want to take the opportunity to address three areas of analysis that we use, and how we should think about using them.

First, I want to emphasise that all analysis is a subjective take on partial information. This means any analytical output is a probabilistic outcome rather than a certainty.

It is true for fundamental analysis, technical analysis, quantitative analysis, and machine learning. While some approaches lend more objectivity than others, there are always subjective elements on how you design the lookback period (1-year, 5-year, or 3 months) and weigh different factors against each other.

Moreover, the market itself is reflexive, meaning it’s constantly moving, evolving, but also includes a self-feedback loop. Unlike a poker hand, where my expectation of the community cards does not affect the actual cards dealt, the market expectations, if strong enough, can self-fulfil the price movements until extreme positioning, and then suddenly snap back the other way.

That’s why analytical work should always bear in mind the different possibilities, whichever technique one employs.

While I really enjoy using Elliott Wave tools, as they provide a good framework for assessing the bullishness/bearishness of an asset, I have found them less effective during sideways consolidation phases of a market (the same is true for other methods, including ML tools too).

Finally, today’s market is muddled by external forces, such as Trump’s policies or the Fed. An impulsive move up is sometimes met with an impulsive move down, as the greater forces at work override “crowd psychology”. TLT is a great example recently.

To summarise, analytical work is ultimately a subjective take by the analyst on a target that is inherently variable, reflexive, and informationally incomplete.

That means one should always take a pinch of (their own or others’) salt, without getting too married to any thesis when the opposite evidence arises. When you read my analysis, my “calls” are the base-case expectations, given what I know holistically, at the time of writing. If the market moves on a different path, we will adjust the views accordingly.

DISCLAIMER: This newsletter is intended for educational purposes only. Any information or analysis in this note does not constitute an offer to sell or a solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice, nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

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