Market Anthropology: Market On Wire

Monday, October 10, 2011

Market On Wire

“I observed the tightrope ‘dancer’—because you couldn’t call him a ‘walker’—approximately halfway between the two towers. And upon seeing us he started to smile and laugh and he started going into a dancing routine on the high wire….And when he got to the building we asked him to get off the high wire but instead he turned around and ran back out into the middle….He was bouncing up and down. His feet were actually leaving the wire and then he would resettle back on the wire again….Unbelievable really….Everybody was spellbound in the watching of it.” – Sgt. Charles Daniels of the Port Authority Police Department, referring to Philippe Petit’s tightrope walk between the World Trade Towers on August 7, 1974. 

As a trader, I can appreciate what a successful dance with risk looks like. Not in the sense that I place my financial health in jeopardy each trade I execute for the sole purpose of taking on risk – more in the approach to successfully carrying out the act and ultimately being strengthened and rewarded by it. There are times when you can feel a sense of balance with the market, even in conditions that present a high degree of difficulty – such as the current market. You are in the flow and dancing with the tape. Other times, you look like Elaine from Seinfeld dancing at her holiday party – awkward, clumsy, spastic – one step behind the music. At times like these it is best to extract yourself from the market and reduce its flow down to a few key components. 

For myself, the year could be distilled in one asset – silver. From its parabolic and ephemeral run at fifty dollars an ounce this spring, to its May-day crash and most recent disorderly decline – it has been the canary chirping softly deep within the mine. I believe over the next week, silver looks very susceptible to another bout of selling, with strong similarities and proportions to silver’s decline and the U.S dollar rally in 2008. If this is to materialize, it will likely extend the gold/silver ratio to relative new highs, which leads me to believe the equity markets have more work to do within the range – and likely on the downside part of the range. 

“The essential thing is to etch movements in the sky, movements so still they leave no trace. The essential thing is simplicity. /That is why the long path to perfection is horizontal.” Philippe Petit

Directly after the time period below – silver went on to loose an additional 30%.