Cloudbreak, from Jim Sogi

August 8, 2007 |

 On certain days huge waves triple normal size break on outside reefs normally too deep to form a wave. These are called cloudbreaks. Catching them requires sitting way outside of the normal breaks to avoid getting caught inside by a breaking wave and crushed and drowning. The paddle is typically three times farther than to the regular breaks.

Today's typical faux fireworks surrounding the FOMC announcement showed a 30 point variance at the extremes around the announcement, which is approximately triple the excessive burst of absolute volatility during the recent announcements. This seemed in line with the approximately tripling of recent absolute volatility measured by daily ranges and swings. It was a good day not to get caught on the inside, and to sit and wait for the waves on the outside of the reef where the wave usually do not break except for the really big ones on the outside cloudbreak.

The other sign of a bottom is the amount of chatter, which dribbles down to close to 0, as if most folks expect the market to go along with their accounts. As the market picks up and heads back up to the highs like it did over and over again in 2000, more wine added to the vat.

Think of it this way. If the market wanted to suck in the most people possible, in maximum deception, it wouldn't just go straight down taking the few with it. It would go back up, to suck more and more back in, give them hope. It might even make new highs to bring more trend follows in on the wrong side, like it did yesterday by making one little new low to bring in more shorts right at bottom tick. It would do it several times to train them into believing that buying the dips works, then it would go down like 2001 and 2002.

Another sign of a bottom is stories the wives tell each other about the huge losses in their husband's accounts and anecdotes about such losses sifting about, worried calls wondering when and if to bail. The cruelest psychological trick is to give the person hope, hope of escape, hope of redemption, then dash those hopes.

Eric Ross replies:

I've been surfing Port Arkansas (Corpus Christi, Texas). I took Monday and Tuesday off as relaxation days because I don't like to trade the day before and day of Fed meetings. However, there were no cloudbreaks to be found. Knee high to waist high is all I got. Swells every four seconds, and while the Third Coast surfers of Texas smile at days like this, I was disappointed (but looking forward to the September breaks in Costa Rica). 


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