Just a question about Gold. Dropped hard last week, and now seems almost stunned… just drifted up 1-2% from the low last Thurs-Fri. I expected a big snap back or a further drop, but not this. Any comments?
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Dale
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Jason
How do you know that the ES “trends” best in the afternoon between the times of 1330 and 1530?
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Dan
if a 50,000 option contract can trigger a 1000 pt plunge at the mere cost of 7.5 million, is it time for us to head to the bunkers? granted it was fueled by pessimistic investor sentiment but there’s enough uncertainty in todays world that anxiety is not a stranger.
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Dan
if the 1000 pt plunge doesn’t have a tin foil explanation (fat fingers, black helicopters, osama options), isn’t it fair to assume that we will see it again?
as t described it, liquidity disappeared when the buy programs went away and the sellers drove the price towards zero. granted this was an extreme, but along the way a lot of safety stops were hit with indivuals losing their lunch money to those who waiting to take it.
given the predatory nature of trading (with futures when somebody gains, someone else loses) i think its logical and almost required that there are firms out there who will exploit this weakness until regulations are put in place that would prevent it.
is it coincidence that the plunge waited till the time slot where the circuit breakers don’t work?
a 10% drop in the s&p e-minis is still about 100 pts which is close to 6 times the daily atr. should the breaker be at 3 times the daily atr (its fuzzy math and probably wrong if you’re a purist but i’m thinking the old bell curve with 3 standard deviations).
what everyone else think?
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Dan
i like the column over at seeking alpha The Attack of The Machines
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Lyle
Yes, as the market behavior reflects human behavior, we will see it again. As the computer programs and all those brilliant, I’m smarter than you guys, all their automatic stops in place. Just think of all the buys and sells just waiting to be triggered. How can it not just speed the melt up and melt downs to the extreme? As Teresa noted, all those stops below the moving average engaged. Like Captain Picard stating “engage” on Star Trek, and off the story goes. Wow, was it amazing just to sit here and watch it unfold. Of course I wasn’t playing just sitting back and being amazed. At the time I was thinking: You boys are just too smart for me, I’m taking my marbles now – recess is over….Yes, it is mostly boys not girls doing all that.
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Dan
so did we get some selling exhaustion today or is the only way left to go is down?
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Dan
what is the general consensus on ECB’s Trichet statement yesterday. my impression is that it was in a word, lame. tell me again why these people are worth the billions of dollars in bonuses that they get paid.
Ondrej 1:45 PM on May 24, 2010 Permalink | Log in to Reply
Could it be rising deflation concerns?
Teresa Lo 6:44 PM on May 24, 2010 Permalink | Log in to Reply
If almost everyone who expects something to go up already owns it, who is there to take it higher?
That failed breakout probably doesn’t help. For members, check out this podcast.
Dale 7:59 PM on May 24, 2010 Permalink | Log in to Reply
Thanks, Ondrej, T, I guess now, we drift along happily watching the movie until someone shouts “fire” in the theater.
Teresa Lo 8:08 PM on May 24, 2010 Permalink | Log in to Reply
I just added a link to my original reply.
Dale 8:32 PM on May 24, 2010 Permalink | Log in to Reply
this could be very brutal for those who have overallocated to Gold in an attempt to keep making money when the stock market is down. T, I think you mentioned the Woody Brock scenario about many people with highly correlated pricing model error. I wonder if it is compounded by leverage… yes, I’m somewhat short for a trade in my funny money account… also plan to keep holding GLD in the portfolio.
Teresa Lo 12:29 AM on May 25, 2010 Permalink
Three factors: i.) correlated mistake, ii.) pricing model uncertainty and iii.) leverage. On top of that, everyone is hoping that gold price is somehow uncorrelated with equities.
wiinky 11:44 PM on May 24, 2010 Permalink | Log in to Reply
Mish asked a similar question about U.S. home ownership :
“Can I ask a simple question: Who does not have a house that wants one and can afford one, and does not need money from the government to buy one, and is not in danger of losing their job?”
“Supposedly there is a recovery underway. Recovery my ass.”
Teresa Lo 12:38 AM on May 25, 2010 Permalink | Log in to Reply
Also, I’m sure everyone is watching to see if gold can hold the 50-day MA.