Mar

27

Jim Lorie

(Photo above: the late Professor James H. Lorie (1922-2005). An obituary appeared on this web site in August 2005.)

My experience with "false gestures" reached its climax at its inception as I accompanied Jim Lorie when he showed prospective University of Chicago professors to the Hyde Park neighborhood. He'd stop at The Unique Deli and conspicuously leave the keys in the car. The prospect would say "I thought it would be very dangerous here" and Jim would say "it's so safe here that I don't even have to worry about the car."

A highlight of my observation of false gestures came when I saw a distinguished Objectivist scholar, always dressed in formal suit and tie, stoop to play with a child at a lecture he gave where all the questions had to be submitted in writing in advance and I couldn't even ask him about the identical twins. The gesture was so false, so contrived, he was so obviously uncomfortable with kids that it was a laugh.

A third experience was watching a Japanese movie where the blond American proprietress of a Japanese wine shop spoke in Japanese to all the Japanese customers. It was so hilarious, so out of whack, that you understood immediately why Japanese think that any American who tries to speak their language, no matter how good his accent and grammar, is an utter charlatan.

A recent experience came when I asked an attorney whether it is good to look at the jury when testifying or look directly at the questioner. He said " the juries hate it when you look at them because they know you're treating them like sheep" and they really don't believe you're that much more sagacious and truthful and a man of the people than they.

I wonder what the significance of false gestures in the market is. It's almost a Googlewhack with just nine out of context, unrelated conjunctions of "stock market" and "false gestures." The move on Monday that's reversed on Tuesday comes to mind, or the move from 2:30 to 3:00, like today, up 1% on the Bear Stearns increase rumour immediately followed by down 2% on the Oracle shortfall of 1/3 of 1% on revenues. Yes, but the real ones are part of the "I'm the greatest" bag. They come when companies fudge the real reasons for their shortfall of earnings or insiders fudge their real reason for selling out – "it was just estate and family matters."

The whole subject calls for quantification and further examples in all fields related to investments.

Jeff Watson adds:

False gestures are the mother of all deceptions. From political campaigns to fire and brimstone preachers, all use false gestures to achieve their ends. The wheat market players have been known to use false gestures in the form of buying up three or four whole trainloads of wheat well before the futures market opening. When the cash board shows a smaller than expected amount of cash wheat coming to market, it can cause the futures market to move up, mostly retail driven. A savvy purchaser of the small cash position can sell a lot of wheat in the futures market at a higher price and also resell the cash position at a premium. Sometimes it works, sometimes it doesn't.

John White writes:

 On many occasions the market has been referred to as “the market mistress.” I find this to be an apt moniker because she shares many qualities with women. She’s complex, mysterious, seductive, and just when you think you’ve got her figured out, she surprises you. With that in mind I thought some observations from last night’s carousing with a friend (in celebration of a birthday) might shed some light.

One only need sit in a singles bar for an hour or two to observe hundreds of false gestures. Looking back on the mating rituals from an anthropological standpoint, it seems to me that the market (women) falls for, then identifies, and finally renders obsolete false gestures. Pick up lines are useless. Sending a drink across the bar is passé. “Do you come here often?” usually elicits a mocking laugh. Fortunately for market participants (men) there seems to be an unending supply of original false gestures due to everchanging cycles. Pick up lines are now a contest to see who can come up with the most outrageous and are obviously a joke. I have sent a drink across the bar, but it was a glass of water. The response was a playful tossing of ice back across the bar and a subsequent invitation for a conversation. When it comes to these false gestures, the key to success seems to be originality and timing. An original and unexpected false gesture can move the market drastically.

My final observation is that even the successful false gesture is merely a crutch. If there is no substance to back it up, the market reverses. It is useful for getting a date (trading), but not for getting a girlfriend/wife (investing).

Steve Leslie explains:

The classic false gesture in poker is the check-raise. Example: you are in a hold-em game and the flop hits your hand and you get a set. You are the first to act. Rather than bet the hand you check. An aggressive player behind you, who might have the top pair comes out swinging and forces the action by putting in a sizable bet. Now you come back at him, and reraise. Properly constructed and carried off, it is the most powerful and profitable play. I find that the player who has been reraised usually knows at this point that he is beat but just can't get away from the hand, and calls the reraise and you take down the pot.

Mike Humbert replies:

Whenever I listen to someone telling me how easy something like this is, e.g., winning at poker, picking winning stocks, etc., this scene from "Get Shorty" always comes to mind. BO CATLETT is Delroy Lindo; CHILI is John Travolta.

BO CATLETT: You know what I'm thinkin'? (leans forward) You wanna make the girl older. I don't like the ending. We could do that, you and me, sit down and write the script over where it needs it.

Chili fips through the movie script a moment . . .

CHILI: You know how to write one of these?

BO CATLETT: There's nothin' to know. You have an idea, you write down what you wanna say. Then you get somebody to add in the commas and sh*t where they belong, if you aren't positive yourself. Maybe fix up the spelling where you have some tricky words… although I've seen scripts where I know words weren't spelled right and there was hardly any commas in it at all. So I don't think it's too important. Anyway, you come to the last page you write in 'Fade out' and that's the end, you're done.

CHILI: That's all there is to it, huh?

BO CATLETT: That's all.

Chili sits forward, stabs out his cigarette, exhales into Bo Catlett's face . . .

CHILI: Then what the f*ck do I need you for?

Eric Blumenschein writes:

False gestures in speculation are not the same as in poker. In poker, you can see the card holders. The equivalent in trading would be six traders sitting in a circle at their screens and you six are the only traders of that particular instrument. Now imagine watching the other five and your screen. Watching price break a new low and looking around to see if anyone is squirming or sweating while others are looking back at you. In trading you don't see the other card holders. It is more like trying to play poker in a dark room around a huge table with only a match to see your hand and the flop is the Fed. So how do you play the game now? The commitment of traders model alone is not enough. I could go bankrupt waiting for them to break the trend. I can't see the game they are in? Are they hedging another kind of trade? What table are they at? What is the flop they are looking for: Housing Starts, Industrial Production, inverted yield curve? Does that make their hand? Now imagine in poker the dealer lays down six different flops to play and after each bet he may or may not make changes in a few cards in the different flops. Would you call that game poker?

Jan

16

Resistance/SupportThe concepts of support, resistance and pivot points became such widely accepted market concepts that one is amazed how every market book mentions them freely as if the reader is supposed to know what they mean and how they should be traded.

In Alchemy of Finance, even the philosophic palindrome mentions them in his real time experiment and how he trades them. Same with, dare I say all the immortals including Paul Tudor Jones among others.

Now, I will not debate the validity of these concepts nor will I question the wisdom of the immortals here but I have a very genuine question about applying these ideas to indices.

You hear all the time that the (pick your index), let's say S&P500 hit a major support (pivot) point that should be watched very closely and if broken will signal the beginning of the bear market. A statement one hears frequently nowadays.

Now, if you consider that the S&P is made up of 500 companies, these 500 companies have each their own support and resistance levels that are tradeable in the same manner as the index, doesn't that mean that the S&P500 index resistance and support levels really reflect nothing and only represent arbitrary numbers that reflect where its components are at, and that the main premise of pivots, support and resistance levels on the index is a faulty concept?

In other words, if we take the extreme case where all the 500 companies are trading at a support level, this doesn't necessarily mean by definition that the representative index is trading at a support level on the chart. It can be trading at one arbitrary point on the chart with no significance to a chartist. Yet, this point is indirectly significant since it represents a colllective support (all the 500 companies are at a support level).

The other extreme case is where none of the companies is trading at a support level but the S&P is trading at what chartists call a support. In this case, what is the significance of the support level of the index (or the pivot point), if all the components of the index are trading in the more fluid level of no support.

For the sake of public disclosure I do not believe in support or resistance levels but am trying to get educated on how the other side thinks so one is well prepared to react or even change one's mind in extreme situations.

Larry Williams chimes in:

I am a doubter of support and resistance, but I am a user or short term highs and lows as they can be mechanically constructed and tested.

And, furthermore, even something that does not work (in my book that would be Support/Resistance, Fibonacci, etc.) may be of value if it forces a trader to use those points as stops or targets. At least you have an approach and something that says get out; limit your losses, or well enough; take profits. Yes, even if they are meaningless they can be of value if they add some form of discipline.

Steve Leslie offers:

I agree that the indices are fluid and not static. Individual stocks are added and subtracted all the time. Therefore it is quite difficult to draw conclusions based exclusively on this and across time. This is akin to comparing athletes across different generations. However two points can be made. First, they can be a good indicator of the general mood or tenor of the particular market that one is studying. The psychology if you will. And the psychology of the market is very critical to performance. Second, If one studies the overall market, one should study the various submarkets as well. The S&P 500, S&P 400, Transports, Utilities, Russell 1000, Russell 2000, NASDAQ, Value Line, Wilshire, etc. A composite can develop. A pastiche. Remember that as in all things, trading is a business of imperfect knowledge and imperfect information. Therefore nothing is absolute. Better to err on the side of caution at times and try not to extract too much from something that can not provide it. As we know, even the very exceptional traders have tough times and lose money. The key to trading is money management.

Eric Blumenschein writes:

The S&P financial contracts are traded for different reasons then the component companies that make up the S&P Index. I know it is obvious but it has not been stated yet. Certainly there are correlating movements some of the time and with some companies and often a lot of the time with a lot of the companies, but in the absence of a definable edge which may already be in use in some blackbox algorithm, it's all just noise. I suppose an edge worthy to explore for me as a daytrader is to know what percentage of the 500 companies currently register on some intraday interval, either above or below their previous day close. That may or may not be relevant to a trade I would take on the S&P eminis. It may make a difference to equally weight each of the 500 companies or slant the weighting to the largest ones or perhaps the smallest ones. If I was a position trader then perhaps there should be separate percentages to defensive issues vs speculative ones. That may or may not be valuable. 

Sep

25

IranSomeone invited him into the USA and Customs admitted his entry. Now we get him here and he is subjected to ridicule and verbal abuse. Two wrongs don't make a right! Even President Bush got his jabs in. The US should show we are the better people and not lower ourselves with verbal tirades while he is a guest in America. If his mind is ever to be changed (perhaps it cannot be) America and its leaders need to set a pristine example. I totally disagree with Iran's terriorist ties and abuses of human rights — but we did invite him here.   

Nigel Davies writes:

Reminds me of a live televised discussion I once saw between a British and Russian school, back in the days of the USSR. The Brit kids were incredibly obnoxious, using it as an opportunity to lambast the USSR without really knowing what they were talking about. The Soviets kids, on the other hand, were really nice and polite and tried very hard to have a normal civilized conversation. As this was televised live in Russia too, it was quite a coup in demonstrating the superiority of the Soviet child.

This sensitivity might be a games player's thing. In our tournaments and travels we have to get on with a wide range of folk who can be culturally very different. I don't see much sign of it in the Western mainstream.

Eric Blumenschein responds:

I don’t believe appeasement as a geopolitical strategy works. Neville Chamberlain was very polite to Adolf Hitler and WW2 still came around. If I am correct, Ahmadinejad was invited to the UN, not to the USA. If he thought Columbia University was going to fold over like sheep and give him the podium unchallenged, then he was obviously mistaken. Kudos to that university to call him out in a way that would never happen at the UN.

Nigel Davies replies:

Chamberlain tends to be dredged up a lot with such issues, but there is middle ground between appeasement and plain rudeness. The way this has been handled the guy will look like a hero back home for sallying forth into a hostile land. And now if they invite Bush to Iran and he declines, it can be portrayed as cowardice back home. You’ve gotta consider the other guy’s moves.

Adi Schnytzer remarks:

My understanding is he came to visit the UN and as such the US government was forced to let him in. Columbia then decided to invite him and in the spirit of democracy (which was the original excuse for inviting him) they permitted an expression of views contra his own.

Nigel Davies responds:

The issue as I see it is one of strategy. He will soar in the opinion polls back home because of his 'courage' in going to a hostile land and fighting the infidel.

What about just not giving him quite so much attention? If he can't distract the Iranian population with his slanging matches with external enemies, they're more likely to judge him on his actual leadership qualities.

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