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With the market up a few percent this year, and daily ranges often running 2% or more, it becomes more important to have some sense, some base of operations regarding what these ranges imply. To start with, one would make the obvious point that the ranges are designed by the invisible evil hand, the bad market mistress et al. to relieve you of good positions. Since many of the market hands are addicts however, the mistress has had to go deeper and deeper into the bag of tricks to get you out. She's given us 23 days of up 40 or more since 1996 , none since October 15 2002, and then 2 this year. On the other side, she's given us 19 down 40 big points or more since 1996, none from 9 17 2001 through year end 2007. And then given us 5 in 2007 to date. At least we're making it harder for her to do her work. And when she does relieve you, it hurts.

Other base of operations stuff to follow such as Nasdaq up very big while S&P up just a little. The fantastic moves from 330 to close just when you're complacent. The big range early in the day just to be recapitulated on a Lobagola basis the rest of the day. And most of all, the look like the end of the world on a Thursday, with the leak of an announcement saving the day before the actual move on Friday. Then of course the fantastic run of big down opens totaling 30 points that follows the one big up 30 the preceding day et al. And of course the fake moves before the big announcements often tripping the stops. Oh, the stops. How the market seems to know exactly where they are, even when the screen is opaque supposedly, and worse yet, when only you know the stop. And the beautiful moves in Vix that always seem to precede the next days moves on a reverse basis. Oh what a beautiful and complex thing it has become. Things like that have to be put in the manuscript of all good market players. I 'll try to quantify some of the meals for a lifetime in similar things provided they are not overly meal for a dayish.

John Floyd adds:

Adding to the complexity of this: the shifting correlations between asset classes, and the economies that are, in part, the drivers of these assets. For an example today (Dec 21) one can look at the moves in gold, the G10 FX carry index (Bloomberg ticker for one is fxcarrsp index) or some of its components by default (yen, nzd, and aud), bond yields, oil, and Emerging Market currencies to name a few.

From an economic standpoint one only has to look at many of the components of growth and see the recent correlations and drivers. Whether it be the influences of housing on growth on the U.S. and U.K. or the export oriented growth of Germany and Japan that now is fading and lacks strong domestic demand to pick up the slack. One can look at what is priced in to interest rate markets in terms of central bank expectations over the next year and see that roughly 80-140 bps of easing is priced for the US, Canada, and UK, not much change for Switz, Europe, and NZ, and small tightening for Japan, Aust, Sweden, and Norway.

Investigating how to best capture the leads and lags here on both a day to day and more medium term basis seems like a potentially profitable exercise. The day to day volatility has increased and the short term ranges often exceed multi period point to point moves by large amounts. Look at the Sept 09 Eurodollar as an example where it has circulated roughly between 96.40 and 96.00 about 5 times in the past 11 days as an example. 

James Bitumen adds:

The big boys who are up on the year are not participating in these markets, unless there is free money up on the table — that they surely take.

Flows are being dictated by two types of market participants:

1. The smaller guys who typically trade all the time and are regular market participants. Through leverage, they still possess a considerable amount of firepower.

2. Managers who run sizable books who are clinging on to flat, or only slightly positive, returns on the year. Even moves of 50-60bps might determine their annualized outcome just a week away. They do not want to play, but they are forced to play in order to achieve a neutral outcome in 2007 for their clients, or maybe catch a year end move that could provide some grotesque form of consolation.


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