There's something about the recent Knicks trade that I believe has important market implications. As is well known to anyone who watches basketball, one of the most ineffective players in th game is Gallo. He plays the game the way our grandfathers did, completely immobile, taking half of his shots from downtown, never getting a rebound, and demoralizing all of his teammmates with fast shots that are rebounded by the other side for quick baskets, taking all the force out of any attempts to play good position basketball from this teammates. While he's in the game, the Knicks can always be counted on to lose, driven into oblivion by the force of fudamental basketball from the other side. Reminds me of a doubles game in tennis where there is a weak stroke on the other side, and you know you can win by just concentrating on the weak persons' stroke in a pinch. (might I remind you here that the signer was never below 1 in 4 years of college tennis doubles at a reasonable school, thereby countering in part the well known and admitted fact that his knowledge of basketball is well below average of his colleagues here).

Okay, naturally during the trade talks, there was much hemming and hawing by the Knicks. "You can have anyone in trade for Melo, but whatever you do, you can't have Gallo. He has so many intangibles, like his smile's and struts to the crowd after he hits one of his three's and he's only 22 and getting better every game et al). Just like Brer Rabbit when he was captured by Mr. Fox and Mr. Bear, and he said "whatever you do, don't throw me in the briar patch).

Naturally, the one thing that the management and the teammates wanted the most was to be thrown in the briar patch, and have Gallo taken in the trade. Once the Knicks achieved that acceptance by the other team, they were free to make the trade because instead of giving away something of value, they were giving away something of terrible negative worth).

 The market is the same way. Often one reaches a situation, where there is one terrible thing happening, one backdrop that everyone is afraid of, that is keeping it down. For example, it can't go up while interest rates keep going up. Or it can't go up while there is tension in the Mideast, or while oil is up, or in the case of a panic drop while a big counterpart has not yet gone under, like long term, or the Leeson when everyone knew he was long the Nikkei, or the british petroleum underwriting after Oct 19th, 1987 crash. The examples are endless.

The situation may best be seen in Popperian terms. Given that the prevailing view is that the market can't go up while situation "A" is happening, the hypothesis is incapable of changing. There is no revision of belief possible. Everyone says like Brer Rabbit and Gallo, the market can't go up while interest raters are high et al. If interest rates fall for a day or two, i.e the market goes up while NOT "A" is happening the belief still is out there. Nothing has changed the basics. The next day it's back to the old game of highly negative the first opportunity the fear can be flamed.

The only thing that can make the market turn on its tail, get the weather gauge back, is if the market goes up when interest rates go up and are high et al. So the one thing the market needs is exactly what it fears, a dose of high interest rates et al, a failure of the british petroleum underwriting concession, the failure of long term, the capitulation of barings et al, before it can go up big.

Like the gallo trade, the one thing that the market needs when it is in fear is a day that it can go against the fear, have the fear realized with no undue consequences and then a reversal of fortune can happen. This is why panics, and escalations in world tension are invariably so likely to create a big change in what had been the big direction of move in the moving averages the previous period.

We should thank Gallo for allowing the Knicks to win again, and showing us why this recent escalation in oil prices is so bullish, and when the next time the market goes up on increasing oil, the market will be as free to win as the Knicks are now, even though they gave away the Gallo into the briar patch et al.

Of couse, this theory must be tested. And it's a variant of the only thing that the Palindrome got right in his 100 books (but that's another story).





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