Supply vs. Demand

Heavy sell Paper came in right off the bell both in the pit and on the screen. That is not unusual; the locals typically scoop this Paper up and they often have the ability to at least bid the price back up to the opening range. At that point they will determine market conditions and gauge if the momentum they gained from being on the bid can continue or not. If it can, they will bust-a-move through the OR. If they see that more Paper sellers are on the horizon or other markets have responded in the same way, showing signs of weakness, they will cover their longs in the mini and go short.

These guys aren’t dummies, far from it. They are there for one thing and that’s to make money day trading. I think a lot of these locals are successful because they can “read the market” and are quick to change direction. However, sometimes they get stuck and then they get stubborn then they get into trouble. Most of the time they can work themselves out of trouble, like today. Sometimes they don’t, like last Friday.

The problem today was Swiss Bank. My guess is that they had inside information about the down grade of Greece debt or at least one of Swiss Banks clients did. They were relentless sellers from 93.50 straight down to 89.25. The locals made a valiant effort to bid the market up but as soon as they saw Swiss back on the offer they ran.

The pit is no different than any other business. Its all about supply and demand. When Swiss is offering a lot of supply (in the form of sell orders) the locals will absorb up to a certain amount. Then when they are at their limit and cant absorb anymore supply, things get can hairy. What happens here is that the locals lower their bids until they feel the price is so low that its worth buying more at bargain prices. I have seen a few occasions on heavy selling where there is no bid at all. Meaning the locals won’t buy at ANY price and there is no Buy Paper available to take the other side of the trade. It’s rare, but it happens.

Today the locals became overloaded and not willing to buy any more so they dropped their bids quickly yet still Swiss hit them with more sell Paper. This looked like it was going to get ugly-hairy but then the knights in shinning armor stepped in. Goldman stepped in and bought 150 cars (contacts). Goldman can afford the best market analysts and their clients are some of the wealthiest traders and fund managers in the world. When Goldman speaks, people listen…at least I do, and the locals do too. They sold to Goldman but quickly covered the trade and got long. You see Swiss stopped selling and there were no other buyers…just Goldman…. That’s all it takes.

You would think Swiss bank had top technicians and they would know better then to sell in to the low of they day, that makes me think all the time, but the reality is that they could be hedging an options trade or they are taking a longer term position or just like me they guess wrong who knows, who cares, The import thing to see how the market reacts to their trades. How the supply is absorbed by the demand. Given how the market traded though the OR and rallied to close near the highs it would look like more upside tomorrow however we did not make a new Value Area high (today’s was 1205.00 ) and we didn’t close above it so we really just ended no fairer than yesterday. We are starting to bounce around here, building value in a consolidation pattern. If we don’t resume our reckless abandonment of buying stocks at any price, we might actually close down more than 2 days in a row.

Tim Mack