Joe and Noah
By Ernie Varitimos
October 22, 2022
0:00 / 10:25
Joe and Noah

This is the 103rd episode of the Zero Days to Expiration Podcast, and in this episode we're going to learn what the Old Testament has to say about volatile markets and how we can use the models it describes to identify real market opportunities. I ain't kitten. The Old Testament provides insight to the nature of markets and how they.

Seriously. Now, I don't think that there's any doubt that the Bible has at least some historical references embedded in its pros, and from that we can garner words from important biblical figures on how markets work through conceptual models. Look, I'm totally serious about this in a, In fact, in a past episode I said that markets have long term memory, whoever thought that markets would have long term memory, but I've shown how they actually do, and that memory influences market behavior in the present by creating a kind of roughness or landscape that I call market structure.

Now, I use volume profile to discover. Topological or topographical mapping of this landscape. And today I'm going to describe the characteristic behaviors that we see in market movements, this sort of trending and consolidation and the erratic movements. These are all, and they're all fractals. They happen in small times as well as larger times, and we can find them in virtually all spans of time and also outside the specific timeframes, something called market.

Which is different from the normal time that we experience. These are like fractal patterns of market movements that can only be seen if we were to compress or expand the regular metronome of time. Now that discussion is, I think, for another podcast, this whole idea of expansion and compression of time, and it's very interesting.

But what does this Old Testament have to do with what I'm talking about Now, these market moves. This behavior of how markets move. What I'm speaking of specifically is something called the Joseph and Noah Effect. This idea was presented first by Benoit Mandelbrot in his book, Misbehavior of Markets, a Fractal View of Financial Turbulence.

I recommend that book very highly. I'm gonna read a specific chapter for you and then we'll discuss how we can add this model to our understanding of markets and how to. From that understanding, so hang on to the end. The following is from Benoit Mandelbrot's book, Misbehavior of Markets, A Fractal View of Financial Tribu.

Chapter 10 and a subsection two dual forms of wild variability to describe the markets. And so middle broth says In science, all important ideas need names and stories to fix them and to memory. It occurred to me that the market's first wild trait, abrupt change or discontinuity is prefigured in the Bible tale of.

As Genesis relates in Noah's 600th year, God ordered the great flood to purify a wicked world. Then where all the fountains of the great deep broken up and the windows of heaven were opened. Noah survived. Of course, he prepared against the coming flood. By building a ship strong enough to withstand it.

The flood came and went catastrophic, but transi. Market crashes are like that. The 29.2% collapse of October 19th, 1987 arrived without warning or convincing reason, and at the time it seemed like the end of the financial world smaller squalls strike more often with more localized effect. In fact, a hierarchy of turbulence, a pattern that scales up and down with time governs this bad financial weather at times.

Even a great bank or a brokerage house can seem like a little boat in a big storm. So this next part from the book is about Joseph. Mandelbrot said, The market's second wild trait almost cycles is prefigured In the story of Joseph. So Pharaoh dream that seven fat cattle were feeding in the meadow when seven lean kind rose out of the Nile and ate them.