Apr

14

Breaking through the Number 10, from Victor Niederhoffer

April 14, 2009 |

5 Comments so far

1. jeff watson on April 14, 2009 7:55 pm

   My late grandfather told me to always buy good stocks when they were on sale. Although the analysis of the market was very primitive in his day, he said that a sagacious trader would always come out ahead in those dips. He used both five and ten dollar indicators as a pricing point. I followed his advice this last go-around and have enjoyed a good return. On the flip side of the coin, I heeded his advice regarding the bond market this last run-up, and immediately lost two points before I reversed my position. Somehow, I don't think that even a sage old man like him would have seen the bureaucrats gaff the table like they did this time. Jeff

2. Chris Monoki on April 14, 2009 9:55 pm

   Thank you. Chris Monoki

3. George Parkanyi on April 15, 2009 10:31 pm

   Well, that would be my GE at $7. However the $11.5 part has been deftly canceled out by my other less timely speculations, so the occasional flash of synchronicity notwithstanding, one stagnates. Cheers, GP

4. Shawn Surdyk on April 17, 2009 4:53 am

   I'm not so sure that breaking the $10 mark this go round will have as much impact given the huge downtrend we've experienced. That is, intuitively, one would expect the first time a stock breaks the $10 mark that this would have a stronger indication of long term, fundamental strength as opposed to the situation we have now where these were already over it prior to the October-ish crash. One simple way to test this would be to group $10 breakouts into a couple groups (the $10 breakout was first breakout in last month, 3 months, 6 months, 1 yr, 5+ yrs) and compare the expected excess returns over the S&P of the different groups.

   One reason the $5 and $10 levels are important is because of the price filters for large funds…all of a sudden a stock shows up on the radars of the big-money funds when it pops through these levels. With so many stocks diving since October, I wonder if some funds suspended these price filters?

   One test for significance of these round-number price levels would be to test volume, volatility and price changes shortly after closing over $5, $10, $15 and $20, relative to the overall market(S&P) for that period. So take the ratio of the 5-day average of the daily volume/volatility/price change for the 5 days before the $10 break to the same number using the 5 days after the break, and compare that ratio to (a) the ratio of the market in general and (b) stocks that are generally trending up (without regard to specific price levels). My suspicion is that we'll see a clear difference between these numbers.

5. douglas roberts dimick on April 22, 2009 7:39 pm

   V, how do are stock markets perform monthly from Black Tuesday, October 29, 1929 to November 23, 1954?

   Two historical observations:

   “After the crash, the Dow Jones Industrial Average (DJIA) recovered early in 1930, only to reverse and crash again, reaching a low point of the great bear market in 1932. On July 8, 1932 the Dow reached its lowest level of the 20th century and did not return to pre-1929 levels until 23 November 1954.”

   “Anyone who bought stocks in mid-1929 and held onto them saw most of his or her adult life pass by before getting back to even. ” — Richard M. Salsman

   See http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929

   With this inquiry, I do not imply a 25 year pattern. However, I am curious as to your assimilation of price action correlations relative to the metacircularity of time and price.

   dr

   Ps. When you say “multicollinearity of all cross sectional studies,” how where the cross sections defined?