When Creating our Dow Projections

In creating our Dow projections Floyd thinks always about what we see as three distinct types of moves in the market:

1. Random Noise
2. Large,unpredictable shocks, like 9/11
3. Cycles of predictable frequencies

Unpredictable shocks influence the market greatly, short term. Random noise (hysterical moves that are short lived) also are huge trend builders, as frequencies and cycles can often shift.

Random noise is often falsely interpreted, and much fodder for market makers, who we now know truly know little (Bear Stearns) to predict from.
As an example, the 400 point run a week ago was perhaps random noise, but market makers saw it immediately as “good news, and better and new upside, and “the great return of the bull run”.

Recent market statistics on what an option trade is might help us understand:
*Typically 45 to 64 year old, male, with a Bachelor’s degree
*Trading typically 1 to 5 years, with some just under 10 years
*Earning 50 to 150K annually
*Trades under 10 times a month, but is trading more this year than last year.

There is one lesson to be learned here, even if you statistically fall in the above category: these are new, more naïve traders that can be easily influenced to market moods, by market makers (the idiots on Wall Street), and that make many rash and emotional decisions.

It is your goal to NOT be this type of trader, but to take advantage of those that are.

Market moves yesterday began what I see as a “trade range” plunge. The market hesitated strongly at OEX 630 and moved to Dow lows of 12,485. Although limited upside moves are still likely, we continue to see more moves to the downside.