Anchoring In Sell-Offs

Comments made yesterday were about traders trying to figure out what the
day "was like." Was it more like 1987? Or 1997?

The media was focus on 9/11 aftermath.

Unfortunately, the market is not anchored in the same way.

Recently, sharp sell-offs have not had much follow-through on the next
day, i.e., no string of crashes. I think the algoritmic trading and risk
management have eliminated this lagged effect. In other words, instead of
committees convening after crashes to decide whether to sell, the machines
have already done so.

For example, on 7/19/02, there was a massive sell-off, S&P down 3.8%. In
the next two days, the market went down another 8% until it bottomed.

I think the markets are acting more like 1/25/07. We had a massive
reversal day that caught everyone, and yet the market only manage to sell
off 4 more points in the next two days.

The way sentiment works is that the latest patterns always supercede the
older ones. The ARBITRAGE is that traders are always anchored to the OLDER
patterns!