What Does A Hurricane and Market Crash Have in Common?

Hurricane Matthew hit the east coast this week.  It was the strongest storm we've weathered in 12 years (with 125 mph winds).

As a trader, I've often thought that weather and market conditions share similarities. As a result, the techniques used to understand and predict them are similar.

Have you heard the term "Eye of the Storm"?  Well, in the context of Hurricane Matthew, it went directly over a weather buoy (Station #42058).

The chart is interesting.  Imagine being a person observing the storm.  It builds, and builds until you don't think it can get much worse.  Then, it appears to stop.  You can breathe.  You can see.  You relax ... Then it comes back faster than before.  Your nerves and reserves were already diminished.  So, it is worse.

 

 via NDBC.

Similarly, it's easy to mistake the eye of the storm (in a major market move) for a sign of safety and opportunity.

I remember 2008.  Storms like that caused many to buy wrong and sell wrong.

Humans see clear skies and walk outside.  Perhaps we can teach the computer to know better (or at least to measure and recognize what is happening better).