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08-Feb-2006
A Healthy Day, by Victor Niederhoffer

The action on Tuesday, February 7, was one of the most cohesive and massive declines in markets in history. Every commodity on my screen, every stock market, and every bond market was down. Gold was down 4% and the Goldman Sachs Commodity Index was down 2.5%, one of the largest declines in its history. However, the massive declines in stocks, gold, and oil, a 20 + decline conjunction never before experienced, was truly shocking and cathartic. After extremely weak openings all around, most markets moved to new lows for the year. And some, such as gas, moved to six-month lows and set all trends into declining territory, while Google's massive 75-point overnight decline last Wednesday was looming in every weak longs sight. What a beautiful day for the shorts.

Adding to the despair and trepidation was the forthcoming announcement by the West Virginian. Every countist in the land it seems had been sending me notes the week before that he was once more due to announce earnings and that the stock invariably goes down 2% on such announcements. But, of course, in such a situation the cycles are bound to change as the trainers tell the boys, "If that nag isn't too close at the stretch don't whip him too hard," thereby setting up the overlay for the next race, said master turf handicapper Robert Bacon.

If only the public would realize that consistent price performance of a stock following its earnings' announcements is similar to looking for the runs of sticky numbers in roulette spins. And, that it's always possible to find a company that shows consistent price performance after earnings' releases (The earnings releases correspond to the different roulette machines in the casino, and the price performance corresponds to the sticky numbers). If the public realized this, then, in my opinion, they would not continue their Baconian tendencies to lose so much more than they have to.

Rather than promulgate from the lofty heights, emphasizing that meals for a lifetime are the only food that I will try to serve, I feel an obligation to break the custom today, just the way I would in the past whenever a certain large speculator would berate me with doomsday scenarios after similar such days in the 80's. I would always tell him in such a situation. "Be happy. It was a very healthy day. The weaks were washed out. The forces of homeostasis will now come to the fore so that the feeding system of the strong eating the weak may continue." Today's action is a throwback to the 80's and 90's. It provides a catharsis, particularly because of the West Virginian and Mountain View fears mentioned above. It's a day that as of the close was particularly appropriate for caneology. Furthermore, I'll go further to opine that any of the usual morning attempts to recap the recent beatings, will provide ample overplus for caneologists to invest in stately mansions.

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