Saturday, December 31, 2011

Serendipity or extremes detection

Chart: Brent oil futures vs "context model"


I've been experimenting with context models for financial assets today, when by serendipity discovered potentially very interesting method for detecting market extremes.

Above you see the chart presenting the price of the Brent oil futures versus some context model.

This was an experiment, since the model was designed to asses prices of some other assets. Brent oil was originally a part of the context. Then I turned the model around.

Nevertheless, the experiment clearly shows that the price of Brent oil extremely diverged from the context in February 2009. Or rather the opposite happened - the context strongly diverged from the Brent.

It would be an interesting indicator for buying context if only I was using this model in 2009...

Hopefully the method will be ready soon for other extremes :)

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