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Howard, I cannot believe all the misinformation that has been disseminated in an attempt to explain the market meltdown last Thursday. The event could not possibly have been caused by an input error because there is no order entry system that uses M for a million and a B for a billion. Do you not remember the controversy and public comments regarding the rule that you could not print a price in any third market trade that was below the bid price on the NYSE? Those who wanted to obviate that rule claimed that speed of execution should should have precedence over price. As someone who remembers receiving a message from the floor of the NYSE "matched and lost", I could never understand why speed of execution would have precedent over best price. Now I understand. Having had much experience with level II and level III montage quotes and trading, I now see how Charles Dow's principle that stock prices can be manipulated in the short term, required the best price rule to be proscribed. It is most likely that an attempt to manipulate stock prices to the downside produced results beyond the imagination of the conspirators. It is not a complicated task to have a computer survey all the liquidity beneath the bids of the S&P 500 stocks and then alert an operator when a number of issues are vulnerable to an absence of bids in the third market when a specialist has delayed trading in several stocks on the NYSE. It would take a fraction of a second to short a big position in the e-mini contract and then hit the bids in the third market for stocks where there are few to no bids. Thus painting the tape with successive stock trades at substantially lower prices would cause the calculation and distribution of market averages to report substantially lower price levels. I may sound like a conspiracy theorist but I am not and have never subscribed to such nonsense, but last Thursday was the fruition of why the price pass through rule was initiated. There is no good reason for changing a rule that had served the market well for many decades other that to serve the special interest of some minority. My only hope is that it was done by someone at Goldman and they eventually get caught. DC
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Your "Island Reversal", when viewed in a different time dimension, the Daily S&P candlestick charts, are are manifested as two classic reversal patterns, a Hanging Man followed by an Evening Dolji Star. Their very names are onomatopoetic to their meaning. These candlestick formations will most always be found at the end of a trend and the beginning of a reversal. DC
Toggle Commented Nov 25, 2009 on Capitalogix Commentary 11/22/09 at Capitalogix
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Howard, Without qualification or reservation your comments this week are definitely cautious to bearish and we are in the same camp. Somewhere out there is a great bull market that will take all stocks to the moon so we are all hoping for better prices to enter this market with less risk. In answer to the comedic question of how to pay back the Chinese, I have devised a modest proposal for the repayment. We can simply cede sovereign ownership of North Dakota in exchange for an amount equal to our entire national debt. No one except Harley riders will miss North Dakota. The only things that come out of North Dakota are inept reactionary politicos. This transaction is not without precedent. During the American Revolutionary War, John Adams, as ambassador to France, arranged a loan to the colonies from a syndicate of banks in Holland. In 1791 George Washington ceded ownership of several million acres of land in upper New York State along the Mohawk River to those very same Dutch banks and thus the debt was repaid. The Dutch banks divided the land into 600 acre plots and sold off the farmland over the next 90 years. If North Dakota won't work then we can always try New Jersey. In closing, college kids are so creative! DC
Toggle Commented Nov 25, 2009 on Capitalogix Commentary 11/22/09 at Capitalogix
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Howard, I am reconstructing this comment from a few days ago when I lost all I had written when trying to post. Your chart of the Russell 2000 reminded me of Joe Granville's theory that the small cap stocks always lead a bull market and the bull market is in place when the small cap prices continue to appreciate. I then went to charts of the Russell 2000, S&P Small Caps and the Dow Transportation Averages and observed lower highs and definite lower lows as shown in your $RUT chart. As the Dow Industrial Average and S&P 500 are making higher highs and higher lows there is a divergence in the trends of the Transportation averages and the small caps. This divergence in the the Dow averages is a red flag of caution and the divergence of the small caps is a double reg flag. I cannot share your bullish thesis. David http://dcorna.blogspot.com/
Toggle Commented Nov 19, 2009 on Capitalogix Commentary 11/15/09 at Capitalogix
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