Feb

15

MLKOn that dark weekend in the 1320 area Kerviel's trades started to unwind and drove the market down in some thin weekend markets. After the 50 Billion sale was done, the market recovered, and thus was an example of what Harris calls trade volatility. The idea is that the 1320 area was the so called fundamental support and the outside influence drove it temporarily down. The last test of that area confirmed that hypothesis at 1320.25. The question going forward is whether the same holds true.

As to your theory about the casinos giving out statistics to lead gamblers the wrong way, when disclosing the statistics, the gambit is that having the true information leads the gamblers to a wrong conclusion falsely believing the odds are tilting in their favor or that the table is not fair, when in fact the table is fair and the odds are not tilted in the gambler's favor. The markets can do the converse gambit and that theory is worth considering which might work as follows: Statistics are cited or historically develop to show how fair the system is, how normal the distribution is, when behind the scenes dark secrets such as Kerviel's evils, government announcements known only to the few before the market announcements and other overweight influences skew the scales of distribution and justice. This is one of the mechanisms causing outliers that come with greater frequency and theory would predict. Physic's evil genie in the gas chamber. That being said, that prior weekend's posts from the public bragging about their short profits were very telling, as are many reports of mass liquidations from the market lows on main street. As Bacon said, "always copper the public's bets."

Steve Leslie writes:

White FlagI have long since given up on trading options, futures and commodities. I just cannot find an edge in these markets that is profitable in the long run. It is akin, albeit on a much smaller level, to Vic and Laurel's disclosing that they do not trade the bond markets anymore. I understand my limitations. I also have given up on looking for significant or absolute lows or highs. Instead I look for the "tweens." This is the area after a stock has broken out of a long base and has begun an advance. Or I look for an exit after a stock has outperformed for a period of time and appears "tired." This works for me and I am content to play in this world. Sometimes I leave plenty on the table for the next guy and that is OK. Revisiting gaming and markets, I am not sure the comparisons that can be drawn. I think most gamblers understand the rules of games are fair, and "cheating" by manipulating a wheel or not using all 52 cards does not happen. Furthermore they know the inherent statistics are against the player's winning in the long run,and they apply to all who partake without passion or prejudice. I am not so sure that in trading markets or investing in equities that they are as fair or equitable. Certainly insider information, manipulation of information and trading occurs constantly. Some in this arena have a decided advantage, and the speculator should always be cognizant of such. In the long run, these abuses tend to be smoothed out. However it is the short run that can kill you if you are not careful.


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3 Comments so far

  1. Anatoly Veltman on February 15, 2008 7:27 pm

    It’s a great observation that a second low (so far) came at that level. You do need an exit strategy, if you’re to punt this one.

    For years tutoring hundreds of traders, including dozens of Russian top bank and fund traders in the late 90’s - I called the current daily S&P chart formation a “Larry Williams buy”. Larry may correct me: you could take a long here - but with a relatively tight stop (below 1320). The idea, the way I put it: if SocGen spike is an artificial low value, caused exclusively by Mr.Mustier’s intervention - then there will be no attempt this month to re-visit it. Trading below 1320 would mean likely slide all-the-way to that 1255.5 limit-down level.

  2. gabe on February 15, 2008 10:16 pm

    [This cartoon style explanation of the subprime mortgage mess is quite funny. I thing the Czar of Accounting in the last cartoon is phenomenal.  Warning: some vulgar language]

    http://docs.google.com/TeamPresent?docid=ddp4zq7n_0cdjsr4fn&skipauth=true&pli=1

  3. Lon Evans on February 16, 2008 2:48 am

    I'm with Mr. Veltman here. 1320 may be a true bottom, but…?

    Take UBS, for example. Yesterday, the optimist could have easily judged its stock a steal at current valuation. Today, well, not so much. Sub-prime is a hang-over that just won't quit.

    As the room well knows by now, I don't see that a true bottom has been achieved, just too much silence from the money boys. And too many ugly surprises on a regular basis.

    I will grant that given governmental intervention (i.e. a bail-out) 1320 becomes the bottom. Should such an announcement find itself broadcast, I exercise the puts and go long. It will be a sorry day should such come to be, but entirely possible, unfortunately.

    Otherwise there seem to be far too many nails left to drive before this particular coffin is properly sealed.

    Mr. Sogi, I do enjoy your analysis. Very direct and logical. I look forward to your posts.

    lon

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