Daily Speculations The Web Site of Victor Niederhoffer and Laurel Kenner

 

The Chairman
Victor Niederhoffer

Home

 

 

7/20/04
An Interesting Dance

Melville, in Moby Dick, describes how a harpooner standing on the back of a whale to carve it up after the hunt would be attached by a rope from a belt around his waist to a similar belt on his mate on board.

Two men connected by such a "monkey rope" are united together in the same kind of action that two separated gears show when connected by an elastic band.

A similar phenomenon occurs around 3 am New York time when the German market opens and then the DAX trades tick for tick with the S&P.

Today the S&P was at 1097 when the DAX opened down from 3814 to 3808, about 1/6 of 1%. The DAX rose to 3820 and the S&P followed it tick for tick, right on up to 1099 . Then the DAX inevitably broke the round at 3800 and the SPUs followed it like the pulley or Ishmael following Qweequeg, to 1097 again.

At first one thinks that this is a bit absurd, it shouldn't be one for one. But then one realizes that the 20-point move in the DAX is 1/2 % and the 2-point move in the S&P is just 1/5 of a %. Thus the gear ratio is 5 to 2. 

I like playing with gears as they tell me about how things work in machines, markets and life.