Like the beat beat beat of the tomtom
While the market resumes its fall
Like the tick tick tock of the 800 clock
And the certainty of the margin call

Like night and day, the market has been inevitably drawn to the round number of 800. It started the year well in the 900's

            hi    lo    cl

1/05     934 916 927

descended with certainty to break below for a second on

1/20     866 798 806

and then descended to the abyss again

1/23     836 799.5 824

One might ask what and who forces the price down to this level, and what it does to people who use stops, and get in over the head. The move occurs in conjunction with the largest drop in bonds history 12/31 141 3/4 138 138

1/23   130 1/2 128 1/2 1295/8   a drop of 12 points in 15 trading days, the previous maximum being 10 points from 7 10 to 7 31 03. Such a bond move above 8 or so has been bullish in the past for bonds and bearish for stocks on the 2 meager occasions its occurred. What does it mean besides kismet?

At the most microscopic level, it confirms the chair's adage that a round number never holds. It also proves the evility of the market in running stops and breaking the backs of all those who wish to ward off total one shot ruin by letting their losses run without stops, thereby bleeding them to death rather than killing them off with a painless one time death. And let us not forget the gravitational pull of the round number as an ethereal force of immutable timeliness.

Remarkably the markets seem to be coming to their senses. Eventually the bond market had to realize that all the new money or debt being created to pay for the trillions of bailouts and guarantees had to come from somewhere or someone. If more money, then certainly it had to lead to inflation. And the liquidity preference theory that because the Fed was buying bonds the price had to go up without limit is shown to fail a critical test, with the expectations hypotheses that interest rates are an average of the discounted rate of inflationary expectations over many years won out. The stock market seems repulsed by the idea that a handful of people are that much more able to decide the fate of who shall be saved and who shall be encouraged to expand than the decisions of the customers. Perhaps it also shows that the basic ethos of the market does not like a few well meaning people deciding how a trillion should be taken by everybody and given to a selected few worthy institutions and supposed linchpins. And that is why I believe the steady beat has been to that abominable 800 level.

Anatoly Veltman writes:

A VIt's true that 800 held by the skin of its teeth last week. I have another important puzzle to solve: Open interest in both bigSP and E-mini experienced record quarterly redemptions when Dec contract expired. While cash-settled futures' expiry is inconsequential — I see only one explanation to record phenomenon: to passively let your position expire and settle (as opposed to place an offsetting order before expiry, or roll-over via spread, or immediately open Mar position), customers had to have lost (en masse) their ability to place orders (even offsetting orders!). And that's another indication of decision power being taken away from customers…





Speak your mind


Resources & Links