Bad Days, from James Tar

May 10, 2007 |

 On days like today, when I have been proven wrong by the market and I am down a considerable amount of coin — when my nose is completely shot off — I close my book, take my losses, and start looking at the market all over again. I might re-enter, I might pass on the remainder of the day completely.

What I am seeing today: nothing has changed. I have not seen the market this fearful of an additional sell-off since May 1, or April 12, or March 30. Who cares if some imaginary geometry on the SPX has suddenly come into question?

I pay close attention to what the market has become: fantastically efficient. I see the market doing its dirty work in a much more efficient manner than even a few months ago.

Alan Millhone adds:

The market ebbs and flows like the tides, sometimes every 24 hours. I note today the Dow is down 120 points, however what about all the past days it went higher and higher? A short time ago it fell 400 points, but it all came back and then some. It stands to reason that at certain points traders are going to sell off certain holdings and thus take a profit. Then the market settles down and begins to climb once more to a certain level. Mr. Tar is in the market every day and gets in and out all the time. I stand back and watch oils, precious metals, lumber, etc. 

Jim Sogi extends:

Blaise Pascal wrote in "The Philosophers" in 1623:

Continuous eloquence wearies. Princes and Kings sometimes play. There are not always on their thrones. They weary there. Grandeur must be abandoned to be appreciated. Continuity in everything is unpleasant. Cold is agreeable, that we may get warm.

Nature acts by progress, itus et reditus, It goes and returns, then advances further, then twice as much backwards, then more forward than ever. The tide of the sea behaves in the same manner, and so apparently does the sun in its course.

And so does the market. Pascal's quote brings to mind yesterday's pyrotechnics on an otherwise unremarkable FOMC plain talk release. The broker's quotes disappeared for a number of minutes, but at least they were busy filling orders in a timely manner. Globex seemed overwhelmed. Why the market goes through these circumlocutions is not clear, but a few things stand out. First, there is some sort of clearing function. Second, the action seems to stretch the capacity of both the Globex system and the trading platforms, which are not good signs. The PPI announcement led to a similar reaction in bonds, which dropped a point in three minutes, then rallied. This has the smell of a mechanical issue rather than an economic reality. It is the thorny path the S&P futures must take to their inevitable new highs. The appearance of a madhouse, of panic, so different than the market's normal stately mien, reminds me of the little chickens in the yard scattering, the mother squawking, all running this way and that from their cover in a panic as the hawks pick them off. Then ending right back where they started.

Victor Niederhoffer remarks:

You can't expect any market, even one with a six percent-a-year upward drift, to go up every day, especially after a series of maxima. The problem is that if you wait for just the truly high-Sharpe days, you'll miss the 10,000-fold-per-century rise.


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