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Mystery Charts That Fit Narratives

Several mystery charts that fit certain narratives have appeared recently in financial social media. This is a growing trend. Here is what I decided to do.

One of those mystery charts is about a “Buy the dip index” and supposedly shows a high level of activity by investors in buying intraday dips, as shown below:

This chart was posted in Twitter

I searched Bloomberg and Google for “buy the dip index” but I found no reference to this chart. Surprisingly enough, Bloomberg search results included a recent article that claims buy the dip popularity is at all-time high. The claim is false as I will show below.

I asked in Twitter those who posted this chart and no one knew how it was made. To me, this is amazing: people post charts they have no idea how are made.

THIS IS SIMPLY INCREDIBLE

Buying intraday dips is not at all-time highs but actually far from that. I create my own charts to monitor buy the dip activity for both intraday and also for longer periods of time. Below is a chart for intraday buy the dip. It shows the rolling count of days with a lower low but higher close in a 252-day window for SPY from inception to 12/26/2017:

It may be seen that buying the dip in the specific context just described is very far from all-time highs. Interestingly enough, the all-time high was at the 2003 low. High activity is also seen in mid 1990s uptrend and near the 2009 bottom. The lowest activity was in December 2013 and afterwards buy the dip in this sense of intraday recovery has remained subdued despite popular misconception, myths and narratives.

I have more charts with different measures of buying the dip but the conclusions are the same as above so let us skip those and go to the the substance:

What do you do when you see charts with no clear explanation of what they measure? This is what I have decided to do from now on:

  • Ask the person that posted the chart to provide details
  • If no answer is provided block that person
  • Inform followers of the incident and recommend doing the same

If this is done by many and especially by those who have a large follower count, people will think before posting material they themselves have no idea of what it means and social media noise will decrease. But I am not a social media justice warrior. I can do this for myself only and I do not care what others will do. After all , there is the other viewpoint that says noise is good and too much order is boring.

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If you have any questions or comments, happy to connect on Twitter: @mikeharrisNY

Charting and backtesting program: Amibroker

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