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October 20, 2006

Community Chat, Fri., Oct. 20, 2006, 6:26 AM

This space is intended for students-of-the-market who wish to pursue any topic of interest where market knowledge and experience can be shared. In my absence today, there are three issues I'd like readers to focus on.

(Topic 1) Recently there have been threads on (i) RSI calculation, (ii) automated systems/services that calculate RSI, and (iii) the nuances of RSI. I intend to write this up in detail at some point but I'd first like to hear the insights others can provide.

(Topic 2) The market has been described as people acting like people. Is that true any more? Do you believe that conventional drivers in equity markets are working when the markets get over-bought or over-sold? Is it possible that derivatives like CDS and algo trading are now in control?

(Topic 3) Has the sell-side been joined by Big Media or is the traditional reporter still in the middle? Are reporters today objectively and independently trying to uncover the causes for shifting market prices or are they part of the cause? If it's the latter, is that intellectually acceptable or will we accept it simply because we prefer the entertainment values rather than the integrity.

Posted by Posted by Bill Cara on October 20, 2006 06:27:49 AM | Category: Community Chat

Discourse

I'd like to hear more opinions on Topic 2...let's start with a primer on "algo" trading, which can be found here:

http://en.wikipedia.org/wiki/Algorithmic_trading

Personally, I think algo trading is preventing the market from expressing itself as it has in the past; i.e., an expression that INCLUDES the masses instead of only HB&B, gnomes, etc. But of course, I'm well aware that Wall Street has always controlled the market the best it can...I just think that algo trading lets them do it much more efficiently

Posted by: glenn-mp [TypeKey Profile Page] at October 20, 2006 12:13 PM [link]


I agree...

the market changed in 2004....
Volatility disappeared, corrections became shallow, buying on bad news began - this isn't normal 'mass' behavior.

The normal rhythm of how people trade seems to have disappeared.

A second point...
I suspect a lot of these algs are trading against all the 'common' techical analysis software hocked to the public and used by discount brokers nowadays.

..and a third point
If people are removed from the market - and everything is being traded by machines - then the financial market can ultimately become unmoored - not based on reality.

People argue against this because they say humans are still involved since the algs are programmed by people. But markets can't be programmed - they are the simultaneous interaction of 100's of millions of people - and if some HBB thinks they can model this on a computer they are insane.

But they ARE insane and they will try - because they are obsessed with control and power. So ultimately as a trader one has to trade along with them or go broke. In the end it will all blow up - but we can have a fun ride until then - I feel another stock bubble coming.

Posted by: Tradesman [TypeKey Profile Page] at October 20, 2006 12:49 PM [link]

Okay, let's try Topic No. 3.

From an astute and trusted advisor:

Rev Shark
10/20/06 4:46 PM EDT

"CNBC continued its nonsense today with a graphic that stated if it weren't for Caterpillar (CAT), the DJIA would be at a record high. Here's a news flash: Without the stocks that went down today, the indices would be a lot higher. Is this objective business reporting or a sales pitch for mutual funds and brokers?"

Posted by: glenn-mp [TypeKey Profile Page] at October 20, 2006 5:53 PM [link]

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