Identifying parabolas and then mean reversion – the story of 2022

The most dominant words in my posts throughout 2022 were “parabola” and “mean reversion”.

Perhaps they appeared ad nauseam but it was were the action was……and the action was to recognise them and stay away.

The skilled (and brave or stupid) may have chosen to see them as shorting opportunities.

None of these calls and warnings will show up directly in anyone portfolio performance. It’ll just be something that we just wink at each other acknowledging that we saw what has going on.

An addendum to my studies covering this broader theme included references to the percentage an asset’s price was trading above its 200 day or 200 week moving average.

It all helped identify the rare air where prices were flying up to.

Since then, there has been much damage to investors, speculators and corporations.

Stay tuned for some examples of damage and mean reversion.

In the coming months, I think we will see prices continue to digest recent moves, produce a few more spikes and head fakes dragging in new participants while incumbent holders cling to new hope of breaking even.

Any new waves of weakness in prices (because markets are cruel) will see various speculators throw their weak hands in.

December 22, 2022

by Rob Zdravevski

rob@karriasset.com.au