Mar

3

700, from Phil McDonnell

March 3, 2009 |

Not only was the S&P drawn to the magic 700 round but others were as well in odd ways. The Dow index was down almost exactly 300 points on the nose. The NASDAQ was down almost exactly an even 4% (really 3.99%). Somehow it does not seem random. Even though one was price level, one in points and one in percent change, still all were quite round.


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5 Comments so far

  1. Michele Pezzutti on March 3, 2009 6:00 am

    I guess it reflects human attitude to ’simplify’ to be able to manage things, especially numbers.
    And then it turns into psychology in setting thresholds and goals.

    Just a simple parallel.
    I tend to experience the same attitude when I do some training.
    I set goals to myself using integers: e.g. swimming 60 laps in less than 30 minutes, running 5 km in less than 20 minutes and so on.

    I guess I would trade with the same attitude.

  2. Chris Monoki on March 3, 2009 10:16 am

    I’m always amused how the indices, particularly the S&P 500, gravitate to round numbers. Outstanding limit and/or stops are more frequently posted around round numbers, in my view. I reckon it’s human nature.

    But 700 on the S&P 500, now down 55% from it’s October 2007, I think discounts a lot of negativity and presents attractive valuations in general. Certainly not calling the bottom, but a simple averaging-in tactic might prove rewarding. Of course, use trailing stops in this highly volatile environment. Thus investment horizon might prove short lived.

    Keep pressing,
    Chris Monoki

  3. Gary Rogan on March 3, 2009 5:24 pm

    It's been well-documented that the human mind needs anchors when no particular number is clearly preferable. When nothing else stands out, the "roundness" factor is the only thing people notice. Or the previous low or high, or something.

    As for calling the bottom, my much-attacked prediction of complete economic collapse is still in force. Everything is disintegrating as expected. Isolated bottoms, like local real estate markets showing strength here and there can't fight the relentless wave after wave of different types of credit defaults from Eastern Europe to Detroit to newly resetting mortgage tranches. The death spiral of defaults begetting more defaults in a chain reaction can at this point only be slowed down, but cannot be stopped. All counter-measures result in more debt soaking up any remaining liquidity thus not improving the overall lending pool. Those who keep looking for a new 1979 BusinessWeek "The Death of Equities" headline as a marker of the bottom will be sorely disappointed.

  4. Chris Monoki on March 3, 2009 9:15 pm

    I am amused, but not surprised by the S&P bouncing along the round number of 700 today. Transactions on top-down type funds, such as mutual, exchanged-traded and index funds put pressure on specific stocks, regardless of stock-specific risk or fundamentals. Thus sometimes a particular stock can get waxed merely because of index fund sways.

    I took advantage of that today and bought certain stocks adversely affected by top-down demand, regarldess of their specific fundamentals. Name one? GE.

    I should also say that I’m no technician…no Elliot Wave of Fibanacci follower. However, knowing that many follow technical analysis it is thus a market mover and necessary to follow. We had a triple bottom today. As a fundamentalist, I could give a hoot. But knowing there’s an army of investors that look at charts, today was important.

    A triple bottom in one day? Surely that doesn’t mean anything. However, should you believe Pareto and Mandelbrot, such patterns — if they are indeed patterns — that happen in a day’s time, are scaled to a week, month, yearly pattern. As such, today was a day in which many investors see base and support.

    Combine the above with round numbers, with a scalable triple ‘day’ bottom, with stocks 55% off highs, stocks are growing increasingly attractive, in my view.

    Should the stock market find support and base out, and should the market trend upward, if only for a short-term, high beta stocks are the ones to own. You can devise a portfolio of 10-15 high beta stocks representing about 40% of total monies and still meet or exceed S&P performance. Trailing stops will pretect principal should the call go wrong.

    I’ve been in cash well before the turn of the year, since I came back from Iraq. I have a decent grip on the global risks, helped by those more talented than me on this board have. That has certainly helped.

    But the S&P 55% off? Shoot, that’s almost as good as a garage sale in Meridian Mississippi.

    Concerned as I am, valuation presses me to be a bull on stocks.

    Keep pressing,
    Chris Monoki

  5. david higgs on March 4, 2009 1:18 pm

    gold was at 1000 not 900, here's two rounds for the price of one

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