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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: Investor2 who wrote (18623)	5/18/1998 1:43:00 AM
From: James F. Hopkins	Read Replies (2) \| Respond to of 94695

I2; The concept may be harder for me to explain , than for me to understand, indeed I'm sure it is. Just picture time premium on Futures and options. ( out side the volatility factor ) that time premium is based on interest rates. The market is at this time driven more than any other time in history by derivatives , and they keep coming up with new ones. As a strategist I see the derivative market over powering the FA or P/Es etc. The derivatives are carried as assets on the books of major finance institutions. This is a huge amount of money. These things lose value if the market does not move. To salvage that lost value they either must buy or margin or sell stocks, or short stocks. They will one or the other in conjunction with taking out more options just prior to the move. Towards the last, just before a meaningful] change I've discovered the specialist and member short interest will change. Right now it's still holding fairly steady. Any way the larger firms are hedged both ways with derivatives and what they can't afford is to lose money both ways, via the time premium, exactly why it takes about 2 months I don't fully understand. But if the Big liquid part of the market fails to make a new high in two months ( give or take a few days ) then the market has to correct and in it's correcting they make enough off the down side to offset the losses on the upside. Just picture yourself as having a straddle in both options..and futures the one thing you don't want is a flat market. The time premium will kill you. I won't get into how big the derivatives market is, as I don't really know..but I am aware that it's much larger than most people think. The two month rule is used by a lot of brokers, and keep in mind the top 50 stocks in the S&P have over half the total market capital of the entire S&P.. The above is why I keep saying watch the super caps. They sell off first sort of sneaky like, ( when the market dives they don't lose as much , also they come back first then flatten out some till the others catch up..then they make a second run up and peak the others run right by them..and if they can't get up again they start to trickle down.. They are off over 5.5% since April 4th. ( what people don't seem to get is that almost half the correction market cap wise has already happened ) if these things cant get out of the doldrums soon the other half will hit..( but it will appear to be more sharp when the other 450 in the index dive ) the reality of it is that the tail will just be catching up with the Head. I thought Thursday maybe just maybe the liquid part was fixing itself..but Friday it got worse..Supercaps dove 1.21% OEX only .87% and the 500 only .77%..( that's why getting a fix on the S&P is so deceiving ) the more thinly traded stocks can hold it up or mask the damage even as the market cap falls. ( same with the DOW ), when she takes her mask off every body goes nuts..but by then it's to late. -------------------- Any way we got to add 5.5% to the super caps by June 5th or 8th to let the big boys not get in a crunch with their derivatives and I got my doubts we will do it. Jim