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Pastimes : The Naked Truth - Big Kahuna a Myth -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (26171)	3/18/1999 10:07:00 PM
From: Cynic 2005	Respond to of 86076

Coby: <<The book is thin above. People don't want to sell. They see we just went to an all-time high. Why sell? People, public, and institutions are all acting the same way. Who wants to book above and trap out? People are booking below in order to catch a pull back for the inevitable rise. They have been well trained like other Pavlov's dogs on the down side. The marginal demand has to be supplied by specialist and market maker. On balance these two are being forced to short more and more to the public demand because there isn't offsetting market orders to sell to meet the demand. >> The fear of "rising" prices is what makes people to not to sell and demand higher premium. That causes the markets to go higher. The "marginal" demand from agressive buyers is often met with specialist short positions. <<The institutional cash position has little to do with this mechanism. That's invested position, not positioning money. The averages are determine by the trading noise at the margin. That's the net positioning flow. When there is major investment change you get sustained price translation like last summer. Not much cash was built up by major institutions because the smaller ones caused such rapid damage that the big ones couldn't extract themselves in time without realizing major losses. ....>> The cash levels at MFs and such has little to do with mechanism. During summer meltdown (he contends) not much portfolio action was taken to raise cash at big funds. If they did, it would have created even bigger swoon. Feds pumping helped them only to the extent that their paper losses were erased. <<The sell-off in February lacked conviction so there wasn't enough market order sales to explore the downside. We are not talking about a thin market with an extended bear base behind it, we are talking about a very liquid state that attends the early phases of a general market top. >> No determined sellers in Feb selloff. Markets have a tendency to explore further downside when determined sellers hit the market with "market" sell orders. I think what he means by "we are not talking about a very thin market with an extended bear base behind it" is that if you are already in an extended bear, the selling in Feb 99 by itself would have caused a serious sell-off. It didn't happen as we are still in a liquid state. <<As the top broadens, the market becomes illiquid. FED reassures the stock market with its regular coupon passes knee jerk response to a weakening in the TYX.X. That isn't institutional cash, it's government welfare. That means there isn't the tendency to pull bids as there was last summer. So whereas you get some downside that picks up the nearby bids below, the action falls into a temporary FED-provided pool of cash. When there is market order to sell conviction and bids are pulled and FED takes the pool away, you get Oct '87, hyper-illiquid state. This is not the state of the gold market currently.>> The fed's pumping liquidity is reassuring to the markets about the state of liquidity. When this state is in doubt (perceptions or reality), there is a tendency to pull bids (read - sell at bid.) When Fed's cash pool is depleted, things get worse, market orders to sell will be the norm. Couple that with Fed taking the pool away and bids are pulled away, you will have a crash. [Here is the part I disagree with him, from whatever little I know. He seems to belive that Feds can really 'support' the market. It is as big a myth as BK. -g-] <<It is a natural process since it is extremely difficult to know just what state the market is in. You'll find the press is always a posteriori. They try to "explain" why price moved. Sometimes there's no apparent reason so they have to grasp for straws and blame it on obscurities like Miyazawa flipped AG the bird on the way to Dulles and so the market gapped down 2000 points. The public prefers to believe the myth that there is a giant conspiracy being cooked up by trillionaires who control the planet earth and hide out in glass and steel towers. Much to the somewhat believing billionaires' consternation when they want to join up to extend their wealth, they find there is no such animal and that the entire enterprise flies by the seat of its pants. That means a beginner has just as good of a chance as the billionaire to be successful. This is the nature of democracy and it is the last thing you'll ever convince the little guy is true.>> He doesn't think that markets can be manipulated. ... more later