Mar

28

"It is common to think of individuals to use genes to make more individual, but from the gene's eye view of evolution, its the other way around. Genes use individuals to make more genes. The chicken is the egg's way of making more eggs". p. 114 The Seventy Great Mysteries of the Natural World edited by Michael Benton.

Yes, and its the digits of the prices way of replicating itself to make individual market players create more of those digits. (I wrote about this before here).

The digit 0 plays a big part in the replication game, and it makes individuals sacrifice themselves to create more 0's.

One notes for example that the double digit 00 in 1300 on the sp has been broaches from below on a closing basis from Feb 03 on three times and gone from above to below on three times.

Similarly for the triple digit 000 in 12000 on the DJI. The DAX crossed the triple digit 7000 on Jan 3rd from below, went above below then above then below on Jan 07, then crossed to 7097 on Jan 13 but stayed above 7000 until March 14, then fell to 6436 on March 16, a decline of 10% for the year, and now for the first time on March 25 hit a high of 7006 but failed to close above 6981, a fact which must cause great disennu to the triple 0's in 7000 and they must be inducing much political change in Germany as we speak to achieve that level.

Similar analysis relates to the Nikkei at 10000 which crossed below 10000 on March 11 briefly, but closed at 100075 and then on the following two days declined 20% captures by the triple 000 at 8000 as its low was 7790, a decline of 25% from its mid December levels of 10300.

A similar analysis could be made with the grains especially corn which has shown a similar affinity to 700 as the Dow to 12000 and the SP to 1300.

Instead of taking closing prices for granted we should ask how the digits themselves influence our actions so that we can make them reappear over and over again.

Kim Zussman writes:

A simpler version of this is the opposite of the usual "the market did Y today because of X": We say X because it did Y and we need why.

The evidence is that for many similar X there are many dissimilar Y.

Price is selfish because its impact demands explanation.

Gay Rogan comments: 

I'm having trouble understanding any of this. Genes are selfish in the following sense: if genes don't propagate, they disappear, so the only genes that are here today are proven propagators. How can prices or digits permanently disappear? And why would 0's propagate more than other digits? How do these explanations provide more clarity than simply saying people's brains are attracted to numerical markers, and in the absence of other alternatives they chose round numbers? 

Steve Ellison comments:

One possible line of reasoning is that people are more likely to put limit orders at round numbers. People often put stops near round numbers, too, but the research I have seen suggests stops are more likely to cluster on the opposite side of a round number from the current price. Here, then, is a hypothesis: if the last two digits of the S&P 500 closing price are above 90 or below 10 (i.e., near a 00 round), the change the next day is likely to be in the opposite direction as today; if the last two digits are above 10 and below 90 (i.e., away from the 00 round), the change the next day is likely to be in the same direction as today.

Checking the last 1584 trading days of the futures,

Near 00 round:
N: 366
reversal next day: 194
unchanged next day: 3
continuation next day: 169
% continuations excl unch: 46.6%

Away from 00 round:
N: 1200
reversal next day: 592
unchanged next day: 15
continuation next day: 593
% continuations excl unch: 50.0%

The percentage of reversals was higher near rounds, but the difference was not significant.

What was significant was the number of closes near the rounds. One would expect a close within 10 points of a round about 20% of the time, but 23% of actual closes were within 10 points of a round, p=0.0006.

Victor Niederhoffer writes:

Here is an interesting paper on round numbers for individual stocks. It doesn't look at expectations, but does look at bid
asked.

Russ Sears writes:

I believe that this paper could be expanded measure this effect on high volume versus low volume stocks. Therefore its stated cost may not be as large as expected on all stocks. My guess, needing testing is the small stocks have this more frequently than the large stocks, that are often computer traded.
 


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  1. duncan on March 27, 2011 9:51 am

    In Michael Pollens the Botony of Desire he outlines how four plants, the apple,tulip, potato and marijuana have shaped humans to the meet their plant needs. They offer some delight ( sweetneess, beauty, food, intoxication) in exchange for mass cultivation. From the plants point of view it has been a very successful arrangement.

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