Wall Street Gecko

Reptilian Observations

Dow Differentials

long standing Dow Theory is based upon theory that
if the Dow Index is doing wonderfully well,
however the Dow Transportation Index is not corresponding:
well then one might have reason to be a bit suspicious
about any implications of an isolated DJIA

traditional Dow Theory would seem to be based upon
a theory that if business is doing so well,
why is it that transportation does not signal
a corresponding flow of goods and "suits"

the gecko also observes any Dow differential:
id est: the difference (delta) between
"blue chip" Dow and the entire market (like Wilshire 5000)

notice that the gecko did not even try
to make any quips about sub-prime mortgage debt,
much too easy a chip shot;
(see: golf explanation of short shots vs. lobs)
and besides, the short attention span of retilians
tends toward becoming bored about static topics;

well anyway, one needs to have an opinion about
how to read such Dow Differentials

keeping in mind that
when the broader market is of similar point of view,
well that's prime timing for the reptilians to move
catching the largest quantity of
unsuspecting market herd mentalities

see the illustration at:
Wall Street Wabbit

remember though, the concept works in both directions,
however a bit assymetricaly because of the
different natures of bull and bear market environments



Financial Concepts

so as to help people better understand Wall Street type talk;

Gecko will begin with offering a gramatical translation for:

"overweight cash"

if one hears Wall Street types speaking of being "overweight cash",
what they are saying is that they have sold off stock holdings

which is related to the concept: euphonism


if the market goes opposite to your investment decision
it might simply indicate that you made your move too early

being that the stock market goes up and down,
if you wait long enough your investment decision
might someday seem correct


it is the "gecko's" understanding that there exists a concept
from the options trading pits of Chicago which conceptualizes that

the "laws" of the "gods" of the trading pits is such that:

only once in your life are you allowed to buy
at the absolute lowest price

and also, only once in your life,
are you allowed to sell at the absolute highest price

other then that,
you can do as much trading as you want


as far as almost being actual useful trading concepts:

stock options are basically "insurance policies"
designed to hedge the risk of adverse market turns

farmers can sell futures guaranteeing a price for their crops,
and airlines can buy oil (fuel) futures to lock in a price

the way the "game" works is that
one would try to buy options when volitility is low
(there tends not to be much "insurance" concern during stable markets)

selling options during high volitility is then profitable
(such insurance policies are more in demand during uncertainty)

the ole buy low, sell high, applied to options

the pricing of options is determined by the:
Black-Scholes option-pricing formula

which is basically comprised of five factors:
the price of the stock
the exercise price of the option
and the length of time to maturity of the option
the risk-free interest rate

the 5th factor being the volatility of stock price

one might want to look into the PBS NOVA documentary:
The Formula That Shook the World

and the
explanation of the infamous
Long-Term Capital Management (LTCM) disaster


to continue trying to share possibly useful trading concepts:

over the long term markets have an overall uptrend,
which tends to make it relatively more difficult to
make money selling short (over the long term)

although "bear" markets, being fueled by fear,
has tendency to exhibit quite dramatic downturns

as compared to "bull" markets which are characterized by
slow steady herd type momentum

"bull" markets are fueled by greed, where
everyone wants to join the trend when they see the market going up

fear is a more immediate and powerful short term force,
when one realizes their hand is on a hot stove
one quite quickly removes it

bull and bear markets have quite different characteristics



the Wall Street Gecko's opinions DO NOT represent the views
of this website, Wall Street, nor even the writer(s)

this webpage was last updated on: November 15, 2007