V NSometimes masters can be recognized by how little motion they make in beating you or relieving you of your funds. On this score, note the S&P in a three point range on five consecutive days, and eight of last 10 closing prices have been between 839 and 843. I find that the old mistress has not done this once in the last 15 years with the closest virtuous performance being on October 11, 2006 with the ranges widened to three. Hats off. What does it all mean? What's the sports analogy?

Paolo Pezzutti answers:

I see two boxers studying each other during the first rounds of a fight to find out weaknesses and strengths of their opponent. They test and experiment, trying some punches and techniques, moving around the ring to gauge capacity and time of reaction. They get ready and prepare the assault. When the moment comes, the fight develops furiously and fast with opponents using all their ammunition to try to knock the other out. When this type of match occurs, it is hard to figure out during the first phases who is going to be the winner. Deception to cover one's own weaknesses and strengths makes it quite impossible to bet on the outcome, unless you know values at play. Today's afternoon move could be one of these deceptive moves to be faded.

Thomas Miller adds:

In a most martial arts matches, the superior fighter expends as little energy as possible while letting his opponent expend his energy, become frustrated, lose concentration, and eventually lose the match. A wise fighter who is outclassed and knows it avoids the fight to begin with, waiting for a another day and a better opportunity. A wise trader would do well to avoid tight range markets waiting for another day and better opportunity.

There is tension in this market like a spring winding tighter, waiting to be released.

Henry Gifford comments:

A tiring bicycle rider can be seen many ways, with the most obvious being movement of the shoulders as if there were a second set of pedals connected up there, which of course is not the case, meaning all that movement is wasted.





Speak your mind

8 Comments so far

  1. Laslo Minks on June 11, 2009 8:17 pm

    I picture a bullfight. The bull keeps charging, expending all its energy. The matador waves a cape then steps aside. Not a fair fight at all.

  2. George Coyle on June 11, 2009 8:32 pm

    My immediate response would be a gamma pin but with expiration a week away it doesn't logically add up. Based on what I am hearing and seeing from participants the performance dispersions between funds are great. The pillars of the last hedge fund guard are closing their doors by the dozens, a testament to the difficulties of the current environment. No one wants to get long but is forced to do so to remain in the game and at the same time everyone wants to get short as the market seems to be a classic bear market rally but the viciousness and duration of this rally could certainly outlast even unlevered solvency (or more importantly investor capital). Valuations and stock picking are back en vogue (or so people say) and macro is on the way out as we regain normalcy. The uptrend is not broken, but the sideways consolidation of late (seemingly driven by the fiscal and economic fears persisting in the hearts of anyone with their eyes open in the last two years) is making for massive uncertainty hence the continued landing back where we started.

    Can we really have just experienced the biggest "V" bottom in history, is 10% unemployment discounted, what of the payroll/employment disconnect, what in the world is a birth/death adjustment, will later revisions take away the mojo, will the USD devalue to a crisis level or is this just rerisking, are the government statistics legit, will inflation rear it's ugly head and ruin the party? All of these questions and many more circle through my mind constantly (luckily I don't discuss these on dates or I would fare poorly). One thing is for sure, the stock market has locked itself into a period of extended ebullience and I haven't seen one negative data point that doesn't roll off the market like water off of a duck's back. It would stand to reason the fed came out in support of the bond market selloff as they were painted into a corner and announcing another $300bb plus buyback to keep rates low would have certainly sent the USD into a greater tailspin and caused old Tim G to play nice with the Angry Creditor Dragon of the far east. And look at how it has been received, a win win: if bonds rally and rates fall credit will flourish and alternatively if the selloff in bonds continues (and the fed feigns support) well then the green shoots are evident in all facets of the market, either way buy stocks. Just get the occasional lower ranking central banker out there to discuss probable rate increases to stoke the flames and let the curve flatten a bit (maybe they even have on a flattener). But all of these disconnects from what studies of markets and history teach are adding to the current uncertainty.

    Sneakily oil continues to press onward and upward leaving its alternative energy peers in the dust. Interesting too how the rerisk trade leads inflation assets like oil and the materials and energy spaces are at the forefront of the stock market a lot lately. Perhaps leading a skirmish in the Middle East? Those pesky Iranians won't let up on their nuclear ambitions and the Kim Jong-il seems hell bent on making something out of all of his rhetoric before turning over the baton (or maybe he is short minis).

    Gold too won't really break which is interesting given the increased appetite for risk being seen in nearly every market. Shouldn't the rerisk send gold cratering? Or are the large foreign reserve balances slowly being diversified? Gold is USD driven lately no doubt but how far can it go? Isn't the USD just the next "financial system" of sorts which will globally have to be bailed out lest we all go down with the boat since it is such a large portion of the global economy and the reserve currency to boot?

    The sports analogy is one of momentum in my opinion. In all games there are periods of momentum and transfers of said momentum. Like an underlying force acting as the grand marionette to the show, often in the late innings of a baseball game things will be reversed as momentum is stolen while the leader pauses. In football teams will go on long routs unanswered subsequently winning or losing based on an ability to maintain or transfer the momentum. Watching intently you can almost feel the leader's uncertainty and either their determination pulls them through or they wind up losing. Basketball too has periods wherein one team's pause serves as the other's opportunity to take the controlling hand. In all sports this is experienced and while the market has infinitely more facets to examine the current uncertainty over what is and is not discounted, not too mention the multifarious interpretations, is serving as the pause wherein either the bulls will regain the mojo and press onward and upward to victory (until the next game) or the bears will find a way to win the day.

    A lot of laying out the issues and not many answers so I say either trade the current range or wait for a breakout (which on the downside will probably be shallow given the relatively low net exposure figures being displayed across the funds on the street and the coming redistribution/reinvestment of investor capital in light of all of the fund closures). Is the precision of the tightness of closes random, I couldn't say but it certainly strikes me that is it an indication of uncertainty in a confusing and convoluted world.

  3. vniederhoffer on June 11, 2009 8:52 pm

    The yellow admiral salutes these erudite able men who were so attentive to the tides. vic

  4. Steve Leslie on June 11, 2009 9:30 pm

    I concur with martial arts. there is no secret why they call boxing the sweet science, performed at the highest level it is a joy to behold. Perhaps no one performed at a higher level than Roy Jones Jr. when he was at his peak. Pound for pound he was a treasure. He would measure his opponent watch and observe. Then he would unleash a barrage of punches and in a matter of a few seconds the fight was over.

    Others who had amazing gifts were Sugar Ray Leonard, Floyd Mayweather Jr., Oscar De La Hoya. even Hector Camacho. When they let their hands go, it was like watching a cobra strike. In fact Thomas Hearns was nicknamed the Motor City Cobra.

    Generally considered the finest martial arts movie of em all Enter the Dragon with Bruce Lee. It is pretty hokey but worth a watch. Bruce practiced Wing Chun.

    Moving on to martial arts in the MMA arena the King of the Octagon was Royce Gracie. He was schooled in the brazilian Jui Jitsu school. He is known as a grappler and once he got his opponent off his feet the fight was generally considered over. The remarkable thing about Gracie was that he was 5'9" and 180 lbs. An opponent would appear to be in control of the fight and then Gracie would force a tap out by a choke hold, arm bar even a ankle twist.

    Here is instructional reel on Krav Maga which is the lethal martial art taught to the Israeli Military. Excellent reading material is Zen in the Martial Arts by Joe Hyams. He quotes such martial arts experts such as Yip Man and Bruce Lee. Very short yet worth the read.

  5. Steve Leslie on June 11, 2009 9:52 pm

    A bullfight is hardly a fight. It is more an assault on a poor beast. There used to be a display called bull baiting where bulldogs would be unleashed in a ring and attack a bull until they killed it. It was generally considered so bloodthirsty that it was outlawed around the world.

    In a bullfight, a Picador is used to weaken a bull by piercing it with a lance in the bull's back. Next the picador sticks the bull with the banderilla which further weakens the muscles and accelerates the blood loss.

    Finally, the matador emerges and performs his ritual with the red cape and a sword. At this point the bull is so weakened that there is little fight left in him. The red cape is used not to instill fury on the part of the beast since it is colorblind but to mask the amount of blood loss by the animal. Hardly sport more a display of carnage.

    However there are some similarities to bear markets. The first stage is obvious, the decline is extreme and the long-side is severely injured. Those who have held on now get to the second stage where they will continue to be pierced with more bad news. Finally if they are still around the capitulation stage occurs and the sword is driven between the shoulder blades and death occurs. Perhaps a bit melodramatic but a secular bear market can sometimes feel like this.

  6. Anton Johnson on June 12, 2009 10:19 am

    As of 6/11/2009 the 5-day change of 10-day daily StDev of the S&P 500 has decreased by 9.04% to 16.55%. Below are stats derived from data 9/5/1985 – Current. Table data are 5-day expectations when 5-day change of 10-day daily StDev is -9% or less. Data are for StDev except last column which is index return.

    StDev level / # / %Up / %Down / Mean StDev % Change / % Index Return

    All       146 64 36 2.97 -0.34

    >17% 102 74 26 4.64 -0.45

    <17%  44 41 59 -0.91 -0.08

  7. Mark Bates on June 12, 2009 10:45 am

    938 -943…
    Have a great day. I certainly enjoy the site.

  8. david higgs on June 15, 2009 8:26 am

    A bloodhound in a heavy scent that suddenly goes cold… where did it go?… up or down river did it go?


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