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Strategies & Market Trends : January Effect 2003 -- Ignore unavailable to you. Want to Upgrade?

To: Londo who wrote (554)	6/12/2003 3:53:51 AM
From: Londo	Respond to of 666

Story time! How much money would you pay for a copy of the Wall Street Journal dated (accurately) 3 months in the future, but with only one condition: You only get to see that day's closing prices. No charts, no high/lows, no commentary. I just imagine that if you gave a guy a copy of April 15, 2000 edition of the newspaper in January 15, 2000, he would take a look at this and say.. "Crap, the Nasdaq 100 is such a good short sale, it's 3700 now, and in three months it's going to hit 3200.. that's 500 points!".. The hapless trader, armed with the knowledge of the future, decides to short a few contracts of the Nasdaq 100. He leverages himself 5:1, thinking of the profits that lie ahead of him. The market rises, along with his leverage ratio.. 3800.. 3900.. 4000.. He thinks to himself, "Wasn't this newspaper from the future correct?" - the trader begins to get a little squeamish that he chose the wrong leverage for the account, having seen 40% of his equity wiped out. But he felt no fear, knowing that the newspaper of the future would deliver its promise of hitting the NDX 3200 level. But the markets, throughout the dot-com mania of February and March of 2000, continue climbing.. 4100.. 4200.. 4300.. Next thing you know, the trader is facing a margin call, having 80% of his equity wiped out. He sadly liquidates his contracts, but one, and takes the loss. Another victim of the Bull Market of 2000. He looks at his lone Nasdaq 100 short contract, and his demolished account equity, and wonders where he went wrong. How could he possibly know what the optimal short price was? Little does he knows that 4700 is in the cards for the Nasdaq; but our trader, despite being armed with knowledge of the future, doesn't know that's the top; all he knows is that on April 15, 2000, the Nasdaq 100 will hit 3200. The only problem is that the moment that the Nasdaq 100 hit 4500, the remaining equity in his account was extinguished. Where was the top? our trader asks. He sees the Nasdaq head up to 4600, 4700.. but that's when things turn around, but without our intrepid trader on the short side. --------------------------- There has to be a lesson in here somewhere - even if you were armed with a snapshot of the future, you still don't know what the ideal entry would be. I guess the other one is that leverage kills. Now, I'm wondering to myself.. If I know/think that the S&P will be around 875-925 in three months, when does one take a position to fulfill that bet? (dollar-cost averaging index options would probably be my route if I was armed with precise knowledge). When they're at 1000 like it is now, or when it hits 1050? 1100? 1200? And unfortunately, I don't have a copy of the Wall Street Journal dated September 12, 2003.

To: Londo who wrote (554)	6/14/2003 5:44:17 AM
From: RockyBalboa	Read Replies (2) \| Respond to of 666

Looks like the stop was well placed, the ZB really zoomed at the end of the week, and stock markets failed to take the 1000 (the SPX) again... I'm satisfied with the EUR results after some choppiness it rose as likely also other traders considered it cheap at 1.17 and below. Unfortunately I sold off the pound way to cheap considering what it pulled off after the unholy treasury warning. Its up 5 cents since and I got less than 2 of the move. But it is still nice to cash in gains and not take part in losing trades. I hope that carries on for a while. I would definitely had less pleasure if I was sailing down in the pound in the 5 minutes and selling it there... The German Bond makes consecutive contract and life highs, scratching at 120 now which appears to be the ultimate (?) target. It was able to rally 4 full points in the last 2 weeks and now what? Given the concerted buying efforts starting at th NY open, I wonder whether something fishy is going on, perhaps someone must be crushed. At the same time, issuing and refi activity is brisk... The Eurodollar draws my interest. All the buying drove the spread for the 2nd expiry downto 1 point which means that the december money is trading quite below 1% now. This does not sound right, considering that a rate cut is happening before september and this could be to the 50bp tune...