Jerry Welch, Commodity Insite!
Call me at 406 -682 -5010
Ennis, Montana 59729
Across the Big Four: stocks, bonds, currencies and commodities the volatility is surreal. Prices are moving sharply higher or lower daily with no end in sight to the big up and down moves taking place. And it is all about order flow. It is all about the, "red line over the blue line." It is all about the algo boys, high frequency traders and computer generated trading.
Below is a chapter from Back To The Futures, entitled, Number Crunchers I penned back in the 1980s. The book can be found at www.commodityinsite.com. Hope you find it of interest. I wrote the chapter long before everyone had a computer and a trading system. Long before.
Newhart on CBS television was a popular show throughout the 1980s. Several characters from the show provided the inspiration for this column. I was surprised at the number of people that called me after this article was published. Some found the article amusing but many did not. As a matter of fact, most of the calls I received were from irate computer traders that took offense at the way in which I portrayed number crunchers.
Computers, computers! That is all I hear about anymore. Computer trading programs and buying and selling stock futures, bond futures, and now livestock features.
Most markets have fallen sharply over the past few weeks and the blame is place on these electronic marvels and their operators. Today, computer trading programs and their impact on markets is the single most discussed topic in the world of investments
Computers and computer trading are still somewhat alien to me. I have never been real comfortable with those electronic gadgets and know very little about what makes them tick. But I do try to stay on top of any new happenings in the marketplace for the benefit of those that subscribe to Commodity Insight or read my newspaper column.
With those thoughts in mind, I decided to contact one of the leading and most renowned wire houses in Vermont. I wanted to meet with their computer people and find out first hand just how those programs worked.
After several phone calls, I was finally offered the opportunity to meet with the managers that supervise and program those influential and powerful new market forces the computers. My mind filled with questions I wanted to ask. I was anxious to sit and meet with theses ultra-sophisticated market gurus.
A few days later I finally met with three gentlemen that are considered computer whizzes men tops in their field. All three looked the part of stock or bond brokers. Each was dressed in a three piece, dark colored business suit with muted pinstripes. And each carried a briefcase that, when opened, bulged with computer printouts of numbers, letters, graphs, and charts.
Oddly enough, the three turned out to be brothers. Upon introduction, the older one said, Hi, Im Larry. This is my brother Daryl and this is my other brother Daryl. The four of us then sat down to discuss the impact of computers and computer trading programs on the markets and on prices.
I looked straight at Daryl and said, The computer trading programs are the ones blamed for this past weeks slide in cattle, hog, and pork belly prices. Have your computers uncovered a new negative fundamental that could cause prices to slide further, such as an increase in slaughter? The readers of Commodity Insight would like to know what your computer have uncovered.
Daryl was staring at me with a blank expression on his face. And so was Daryl. Then Larry said, Whats a pork belly? And what do you mean when you say slaughter? And what has all that got to do with where prices are headed?
Confused, I turned my head back towards Daryl and Daryl and said, Daryls, what exactly do your computer gauge before buying and selling decisions are made? Commodity Insight, for example, is very bullish on cattle prices. We believe that by the first of the year, the USDAs Cattle Inventory Report will show the cattle population to be under 100 million head. Have your computers uncovered some new facts to alter that outlook?
Both Daryls, what exactly do your computers gauge before buying and selling decisions are made? Commodity Insight, for example, is very bullish on cattle prices. We believe that by the first of the year, the USDAs Cattle Inventory Report will show the cattle population to be under 100 million head. Have your computers uncovered some new facts to alter that outlook?
Both Daryls continued staring out into space when Larry replied, Cattle Inventory Report! You mean to tell me that someone actually counts the cattle throughout the country? Now that is interesting. I guess you could count the legs and divide by four. Our computers can do that for sure.
Larry then stood up and began pacing the room. Let me try to explain how our computer trading program works. Its highly sophisticated. We sold livestock futures last week because the oscillator and the relative strength index both issued sell recommendations. Just as important, the momentum rate of change and the average directional movement index indicated weakness. Those indicators were further supported when the channel indicated weakness. Those indicators were further supported when the channel index crossed the linear regression line. The next thing we knew, the stochastics suggested a break in prices was coming. Heck, we had no choice. We had to sell the futures. Both Daryls nodded their heads in unison.
About this time I knew I was out of my element. All this computer talk had me baffled. I did not understand what Larry and his brother Daryl and his other brother Daryl were doing in the markets. Heck, I didnt know what they were even talking about!
Exasperated, I stood up and extended my hand in thanks. The three brothers rose from their chairs at the same time. Each pulled up their pants and tugged down their tightly buttoned vests. Then, I shook Larrys hand. But Daryl and Daryl simply gave off a snappy little salute with their left hands touching their foreheads.
Meeting with those computer experts was strange. The fact that Larry did all the talking while both Daryls stared at me did not really bother me that much. What really got to me were the rumpled baseball caps they were wearing with their business suits. The caps were turned sideways so the bill extended over one ear. It was strange!
Like it or not, computers and computer trading programs are here to stay. The controversy, however, rages at this very moment. Should computers be allowed to trade the markets or should they be banned?
Commodity Insights position on this matter is very clear. If computers are outlawed, only outlaws will have computers.
The volatility this week including today has been simply surreal. It has been all about order flow and break outs to the upside and breakouts to the downside. In such a scenario, I suggest to buckle up for the sake of safety!
The time is 8:30 a.m. Chicago
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