Feb

23

ChairWhat must not be gainsaid is that the rise of 22 points in S&P futures from 3:30pm to 4:00pm on February 22 from 1334 to 1356 was the greatest rise in history. The rise of 24 points from 3:00pm to 4:00pm from 1332 to 1356 was the second greatest in history, failing by only a point to match the Société Générale rally on 01/17. It was beautiful the way the market set up exactly the same way it did the Friday before all the money was made by frontrunning and running stops associated with the $7 billion loss. Also beautiful was the way the move from 1327 to 1357 (low to high) on Friday basically recapitulated in half an hour the entire range of the last two weeks. That's what a classical symphony is supposed to do at the end of the piece, recapitulate all the themes, bring them together and close with a bang. Also of note was the sentinel function of the bonds in the entire mass, staying down nicely even while the market at the two week lows. It was all guaranteed to happen.

J.P. Highland adds:

Natural gas also had a nice day, settling above $9 for the first since February 2006. It's been quite a run since December 2007 when it was trading below $7. Nearby months are selling at discount, but open interest is decreasing.

Jeff Watson noticed:

While the S&P rallied today at the close, there was also great volatility in the wheat market. The nearby months in Minneapolis did a mongoose/cobra dance today, and the mongoose won.  There aren't any shorts in Minneapolis wheat who are making money right now. 

Kim Zussman studies:

In relation to the joyful pop near Friday's close, I was wondering how to design an experiment in which subjects obsess about short-term gratification in a system with long-term utility.

(ES on Friday from open to 1130 PST was -18, and from 1130-cl was +25.25. Over recent 100 days, when op-1130 < -10, 1130-cl average= -1.5, T=-0.7)

During recent 100 days , lucky longs celebrated some or all of the following:

KZ1

Yet during the entire period, the net change was -217.

The mean O-C was a dull -2, but certainly there was much along the way to self-flagellate or congratulate over, depending on the spin of the wheel:KZ2

Lon Evans queries:

In regards to "It was all guaranteed to happen": Why so?

Note that the AmBac information was released towards the end of a Friday's afternoon session, replete with low volume and high volatility. Note, as well, that the news was released as the S&P was tumbling dangerously close to the dreaded 1320 level. Take also into account that no (pesky) details were included in the given information. Finally, acknowledge that the Bush administration is actively involved in the bail-out considerations (which suggest but another timely release of disinformation from a cabal that would rather climb a greased pole to tell the lie, than stand on the ground to tell the truth).

Without the mentioned announcement, was Friday's reversal "guaranteed?"

Let's consider another scenario. Friday closes at 1324, after bouncing off 1320. We awake on Monday to Asia's having sold off heavily in a tidal wave of red. Spitzer, again, rattles his saber in demanding that the rating agencies come clean with timely and honest evaluations of the monolines' status. And a credible evaluation of accelerating inflation hits the wires.

Given the above scenario, would a Monday's close below 1320 have been a reasonable possibility?

Where is the science in your predictive model? It seems to me that all you've done is demand that a arbitrary result validate a biased opinion. Other than betting upon an "inevitable" inevitable, I don't understand that your system of analysis is any more logical than that of a friend who utilizes tarot cards to guide his investment strategy.

No one can argue that Friday was very profitable for the quick-witted daytrader (full disclosure: I was among the less acute, managing to cover my short with only a couple handle loss, and just as my limit was so close I could smell it). But having cut my teeth on a day-trading floor during the dot-com boom/bust, I'm as aware as any what an accumulation of the quick-witted can impel given the intraday scenario, particularly a Friday scenario.

Will the calvary route the savages, succor the wagon train, and unite the dashing captain with the demure beauty? Only the details will tell. Should this boil down to a Federal bail-out, I'll cover my puts and look to go long. Should it be but a bickering viper's nest of plutocrats and the over-privileged, I sit tight. Either way, there is little science involved in my decision. I'm only interested in what target the guy with biggest stick swings at.

Sushil Kedia observes:

On Thursday, the Indian futures index CNX Nifty produced exactly the same pattern. Meandering lower the whole day and going up in a straight line in the last 30 minutes to finish at the high of the day.

Shorts got squeezed for sure as the futures discount of 30 points got compressed to just about 5 points. Chartists gruntled with joy oh a hammer and the Index jumped from the 5080 area to 5200.

However, the next morning the market opens with a large down gap at 5130 explained primarily by the overnight move in the US, stays throughout the day at the downgap as the resistance for the day dipping in between by a percent from the open some 20 times. The market saw the move on Friday as a dead /dyeing man's heart beat really going nowhere.

One wonders if there is a global trading pump that is on microcosmic level driving the same algorithm in every market?

The rare downgap opening after the move such as on Thursday in India could well be explained with the higher significance of the larger market called US the night after. However, if Asia did still trade lower on Monday would that call for the traders in the US to be ready for a lower market on Monday there despite the move of Friday?
 


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10 Comments so far

  1. George Parkanyi on February 23, 2008 12:45 pm

    All that negativity was a tinder-box waiting to be lit. A silly little news item about Ambac (if that was really the “cause”), and we have a roaring fire. It’s like the brush fires of California (or the ones I experienced as a child in Adelaide, Australia - miles of hillside completely lit at night in the distance in a line of orange running from top to bottom). The selling begins to dry up, short positions go stale, stocks coil, and then - a match, any match, and the explosive rally.

    I’ve noticed since the high-volume reversal from the late January low, many individual stocks doing the same thing. I’d say about 8-10 of the 24 stocks in my portfolio have had a 10%+ up-day at one point or another since then. That’s why I like being fully invested; you don’t want to miss those trains pulling out of the station.

    Will the market follow through on Monday? Who knows? Who cares?

    Cheers, :)
    George

  2. Anatoly Veltman on February 23, 2008 9:36 pm

    Lon's points are well taken. I think, Vic just provoked a debate — thus dramatic language.

    I liked Vic's point about Treasury futures not responding to stocks' initial demise. It must be noted, however, that Fed Funds futures already priced 100% probability of 50 Mar18 + overwhelming odds of another 25 in April. Also, big Thu rally in Treasuries was on reduced Open Interest — i.e. short-covering; thus no technical basis to continued performance next day.

    Most important: CNBC's Gasporino shpil around 3.20pm was emphatic enough to spring me into instant action. Most participants, alas, are too slow on the trigger, don't understand news, or have no place for the news to begin with (in their trading system).

  3. David Whitesel on February 24, 2008 9:59 am

    Lon Evans said; “Take also into account that no (pesky) details were included in the given information.”

    And so the necessity for differentiation of intent, becomes clear.

    Your penchant is to “I’m only interested in what target the guy with biggest stick swings at.”

    And yet, your lacking as much missing information, as the guy on the other side of the city with whom your vaguely attached.

    Time holds all of space, and therefore your capture or loss of a few handles or hundreds, need to be properly characterized against other options, other intents.

    Yours is a common viewpoint and it sounds like it serves you well. Your intent, is attachment.

  4. Anatoly Veltman on February 24, 2008 10:45 am

    Anatoly Veltman adds:

    Commitment of Traders released Fri afternoon: shows that both Large and Small specs substantially boosted their short exposure. Most pronounced was shorting in Nasdaq and Russell futures. Further confirmation of profoundly bearish posture was contained in Yen futures positions - where carry trade is bordering on extinction.

  5. David Whitesel on February 24, 2008 12:07 pm

    Anatoly Veltman said: Most pronounced was shorting in Nasdaq and Russell futures. As would be expected due to the pervasive inertia already defined by the single stock liabilities accumulated short positions. This is so predictable, positions are being staked in the same direction as other positions with full expectation that outcomes can be realized. In my own counting, I see this as pretense. Outcome based programming which moves to scale. Trouble is, the accrued liabilities that precede these latest accruals, are being taken without respect for the evidence of the market. At least where I am looking.

    If one has a good data base of a particular issue's volume moving average, two years is good. One can begin to understand the present for what it is, in this case, those with a preference for seeing the market as a forest without consideration of its trees, will always function in the direction of need using forest metrics where tree metrics are required. Wrong tool for time. We call this price suppression for the purpose of accumulation. In reality its a simple routine widely articulated by trading systems under particular banners. At particular moments, the intent of the broader universes of potential participation picks up on the goal seekers, involved in tactics that have become routines.

  6. Rich on February 24, 2008 7:19 pm

    The stock market surged late Friday on reports of a deal that could forestall a downgrade of bond insurer Ambac. The market had been moving lower until the news. My concern is the inflation picture. Prices seem to be going up everywhere. This will keep the Fed from lowering interest rates much beyond maybe another 25bp.

    My forecast model goes from long to cash at the close on Tuesday.

  7. George Parkanyi on February 25, 2008 12:52 am

    Neither inflation, rising interest rates (other than the initial knee-jerk reaction), or recessions are necessarily bad for stocks.

    I’m thinking, these days, what are the alternatives? Where are people (including me) going to put their retirement savings? Bonds? (as inflation accelerates) Real-estate? (illiquid) Cash? (great inflation hedge - not). Gold? (there’s a bargain).

    Call me crazy (or drunk), but good quality companies beaten down 30-60%, denominated in devalued US dollars, actually are looking pretty darned good. Maybe some of them “forrners” might be thinking so too … :)

    Cheers,
    George

  8. Lon Evans on February 25, 2008 4:50 am

    Dear George,

    Have you revealed, in you question, that which distresses me in much of this communities tone? Are you an investor, rather than a speculator? Are there more, such as yourself, tied to the concerns of “retirement.”

    Without criticism, but being honest, this is a site for speculators, not investors. Risk is a necessary and unavoidable reality in playing this game. If you’re in a position where the future is bearing down upon you, and unrelentingly, you are better served in exiting this game and seeking one less dangerous.

    The same is proffered to those who take offense in being offered an opinion that discounts their “perfect” analysis. Markets will never reward anyone with illimitable reward. There will be instances of loss. If you can’t deal with loss, get out.

    Sincerely,

    lon

  9. Craig Bowles on February 25, 2008 10:20 am

    Kind of spooky since the greatest rallies have historically been during bear markets.

  10. Lon Evans on March 2, 2008 3:08 am

    Dear Craig,

    “after bear markets.” You might want to work on you tense.

    Cheers,

    lon

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