The Lawrence Chan Blog

I have decided to use the title "Art of Chart Reading" instead of "Crash Course in Chart Reading" for my ebook in progress.

The scope of the ebook has expanded to include more fundamental concepts on charts and also advanced techniques in utilizing charts in trading.

I will update the pages to reflect this change in coming few days.

Go take a look at the new main page.

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Bloomberg news, Fed Seen Pumping Up Assets to $4 Trillion in New Buying

48 out of 49 economists predict FOMC will …

Whatever they predicted does not matter.

What matters is that they mostly agreed with each other.

Definitely the sign of "end of the world".

ROFLMAO

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As reported by NPR, School District Owes $1 Billion On $100 Million Loan

I am speechless when I finish reading that article.

Who gave the authority to these people to put the future of these school boards on hook for eternity?

I wonder will there be any official investigations into the matter, specifically, if the loans are made with kickbacks and backdoor deals?

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CFTC came out with this press release on Goldman Sachs failed to oversight one of its traders in accumulating an $8.3 billion worth of emini S&P contracts back in late Dec 2007.

As reported in the PR, Goldman took a loss of over $118 million in unwinding the position.

The whole situation described sounds extremely unlikely because the problem happened over 7 trading days but obviously spanning across almost a month time.

We have seen in other fat finger scenarios that the problem is caught at once.

And we also learned even with boutique shop like Rochdale that a trader doing something out of line, the company would figure that out the same day.

Am familiar with the GS manual entry of positions and I thought it would have integrated that to the backend at least 10 years ago. Obviously it is a feature of the protocol and that Goldman likes the fact that it is done manually. Isn’t that the perfect tool for making excuses?

I have not found any specifics in the PR requiring Goldman to properly upgrade their computer systems to eliminate the problem. So I guess it is acceptable by the authorities for this to happen again when someone find it necessary.

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I posted in my real-time chat yesterday in the morning that the sudden margin increase on Apple will force a significant amount of stocks to be liquidated and that amount can be estimated. It is not a straight forward formula. Instead we can approach that with classic chart pattern.

Volume exhaustion on a selloff is a well known classic way to tell if enough long holders are removed from the market. Classic threshold is 3 to 5 times the average daily volume. Before yesterday, Apple’s average daily volume as reported from Yahoo Finance is about 20 million shares. That puts the volume exhaustion estimate at 60 to 100 million shares.

But that is just the normal, end of a selloff signature pattern. This time, we have a structural change induced by one of the clearing firms. Notice it is not a general increase of margin requirement across all clearing firms. As long as other clearing firms are not jumping in on this change, it is just a market shock.

Hence the volume reflected would be lower than the normal exhaustion pattern.

As of yesterday approximately 40 million shares were changed hand.

This morning another 10 millions already changed hands.

The impact of the margin change is almost over.

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