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Cashin On Gann Folklore And Friday's Fireworks

Tyler Durden's picture




 

With tomorrow's CDS roll (when indices change composition and on-the-run maturities are extended) and Friday's major equity option expiration and S&P index reweightings, it would appear, as UBS' Art Cashin notes, that the action of the last few days (and even last week) will be largely driven by the creation of complex strategies to "milk out every ounce of profit that might be available in such huge [technical] shifts." Combine this technical factor with the Autumnal Equinox, of W.D.Gann infamy, and the stage is set for fireworks as we approach Friday.

 

Via UBS' Art Cashin:

Pre-Expiration Shuffling May Have Bailed Out Final Hour – As we noted last week, Wall Street is abuzz with speculation about Friday's Expiration. Not only is it a quarterly but it will involve a rather massive reweighing of the S&P indices. At one point it was guesstimated that Coca-Cola might see 50 million for sale on the close.

With such large shifts possible, the Wall Street wizards naturally began setting up complicated strategies to milk out every ounce of profit that might be available in such huge shifts. Combinations of stock and options and futures and even ETFs are cobbled together to yield great reward as they are unraveled at the expiration.

The setting up of those strategies and combinations is done over the days leading up to the event. Wall Street watering holes say the process actually began last week.

That means that traders must weigh in a new consideration along with things like economics, monetary policy, geo-politics and corporate events. It makes the days leading up to the Expiration a bit more unpredictable than usual. We think it was a factor yesterday.

 

Revisiting Wall Street folklore and The Autumnal Equinox – In past years at this time, I have quoted my pal, Dennis Gartman’s citation of a piece on seasonality and late September by his good friend, Paul Macrea Montgomery. (Paul has become a bit of a legend over the years for his ability to dig out arcane or overlooked clues to the market – wish I could do that.) Anyway, here’s a bit of what I quoted last year:

The legendary trader W.D. Gann reportedly claimed that capital and commodity markets tend to top on or around September 22nd more oft than on any other day of the year. There is not apparent economic logic behind this reported observation, but the notion might very well have a certain appeal to astrologers, in as much as September 22nd happens to be the usual date of the Autumnal Equinox…the day that the earth crosses the Sun’s equator going south, and one of the two dates each year that the days and nights are of equal duration.

 

This is the day which, according to ancient lore, the Sun enters its “Fall,” thereby reversing for a time the rising animal spirits and other good things associated with Spring and Summer, and setting the stage for untoward events to unfold. Apparently this concept is so ancient it pre-dates even the oldest Mesopotamian culture.

 

Initially, we never took such notions seriously. This was despite the authority of W.D. Gann and even despite the research from the Department of Neuranatomy at Yale Medical School, which discovered that the human nervous system typically undergoes measurable perturbations during the late September time period (and in mid-March as well). However, subsequent to hearing of Gann’s proposed rule, and of Yale’s medical research, we have experienced firsthand the October Massacre of 1978; the October Massacre of 1987; the October Crashette of 1989; the 1997 Asian Collapse; the Long Term Capital rescue on September 23, 1998, etc. Also, remember the great Gold Boom of the 1970s, while bullion peaked on January 21, 1980, the Gold and Silver stocks made their all time bull market highs on September 22, 1980.

 

This day also saw the major peak of many oil stocks, which were enjoying a parallel bull market at the time. Also prior to the Great Crash of 1929, the last stock index to make its then all time peak… the Dow Jones Utility Average… did so on September 21, 1929. Even as far back as 1873, there was such a panic that the New York Stock Exchange voted, on September 21st to temporarily close its doors...

 

Besides stock market moves, numerous currency market moves also have keyed off this date. On September 21, 1931, for example, the British pound was devalued 28% overnight… from $4.84 to $3.50. Also, the now famous Plaza Accord of September 21, 1985, which started a dramatic run in currencies, occurred on the exact 54th anniversary of Britain’s leaving the gold standard. And recall a decade or so ago in 1992 when the French vote on the Maastricht European Exchange Rate Treaty was set for Sunday, September 20th. The British pound sterling collapsed a few days immediately previous to this vote… And finally, recall that the historic Gould-Fisk Gold Corner Panic” saw riot conditions as Gold peaked exactly on September 21st… the year was 1869.

 

As I have explained over the years, much of that seasonality was understandable prior to 1929. The U.S. was an agrarian society. To pay for crops, money would leave city banks for country banks. That often led to temporary liquidity squeezes in the city banks which sometimes produced financial crisis. Now we have a Federal Reserve system and we’re highly urbanized but the seasonality seems to linger. Anyway, thanks to Dennis and Paul.

That means this Friday's (September 21st) huge Expiration and reweighting are all the more important to watch.

 

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Wed, 09/19/2012 - 11:24 | 2811235 francis_sawyer
francis_sawyer's picture

So... I see it took a whole week for Art to come down from his 9/11 melancholy & seek out real truth with his buddies like Dennis Gartman...

Step aside Art... The only dates you need to worry about in the near future are Yom Kippur (Sept 25/26)...

Wed, 09/19/2012 - 13:24 | 2811794 Squid Vicious
Squid Vicious's picture

definitely not a j...

Wed, 09/19/2012 - 18:12 | 2813102 q99x2
q99x2's picture

He's an alcoholic. That is for sure.

Wed, 09/19/2012 - 11:22 | 2811246 HelluvaEngineer
HelluvaEngineer's picture

Uh-huh.  Major moves.  Any day now.

Wed, 09/19/2012 - 11:27 | 2811272 disabledvet
disabledvet's picture

I'm still not a bear on equities but I think anyone who's not terrified of the policies coming out of the Fed right now needs to have their head examined. Honestly...who's paying for anything right now?

Wed, 09/19/2012 - 11:28 | 2811280 sdmjake
sdmjake's picture

When I look over my shoulder,

What do you think I see?

Some other cat looking over

His shoulder at me

And he's strange, sure he's strange.

You've got to pick up every stitch,

Beatniks are out to make it rich,

Oh no...must be the Season of the Witch...

Wed, 09/19/2012 - 12:20 | 2811510 Andy_Jackson_Jihad
Andy_Jackson_Jihad's picture

Stacking up the money and there's more to collect

Cause I don't give a fuck, I take traveller's cheques

Yo, Ren, peep out the window, and tell me what you see

(Three motherfucking police staring at me!)

Hurry up and get armed

Alright, tell me, who hit the motherfucking alarm?

I'mma give ya a chance, and count to three

Or else five of y'all bitches are comin with me

Wed, 09/19/2012 - 11:30 | 2811285 GoldbugVariation
GoldbugVariation's picture

Oil has topped and fallen 9% from its peak on Friday 14th September 2012.

Oil bottom in June 2012 led the bottom in equities by approximately 4 trading days...

Wed, 09/19/2012 - 11:32 | 2811288 Yardfarmer
Yardfarmer's picture

 W.D. Gann relied primarily upon a complex interaction of angles as the basis of his market augury predicated on the 90 degree right angle with the vertical axis denoting price and the horizontal indicating time. No surprise there I suppose, but it was not Gann's elaborate and unique interpretation of such simple functionality alone that led to his amazing prescience which guaranteed him a large following willing to pay exorbitant sums for privileged access to his arcane science. Less known was his close association with the astrologer Sepharial, the nom de plume of one Walter Gorn Old, to whom he owed much of his prophetic prowess in profit. On the surface this was a distinctly improbable relationship given Gann's strict and apparently devout fundamentalist Baptist confession. And yet, as it is with so many historical notables, Gann's religious profession was but the persona masking his deep and abiding involvement with freemasonry. Sepharial himself was deeply connected with the notorious theosophist thaumaturge and Ohkrana agent Helena P. Blavatsky with whom he resided. Among Sepharial/Gorn Old's most notable accomplishments was the improbable feat of winning the Cuba lottery five times (!) a testimony to his much admired proclivity in the practical application of his extraordinary mantic gifts.

http://kushmonster.blogspot.com/2010/02/prophets-profits-and-loss.html

Wed, 09/19/2012 - 12:37 | 2811565 Fredo Corleone
Fredo Corleone's picture

"[T]he improbable feat of winning the Cuba lottery five times..."

Not all that improbable. Gorn was an associate of Hyman Roth, who always rewarded his "friends." Roth owned Cuba in those days...made a veritable fortune -- but make no mistake: Pop never trusted him.

Wed, 09/19/2012 - 11:32 | 2811302 LouisDega
LouisDega's picture

Bullish for Grucci fireworks inc. Located right here in the good ol USA

Wed, 09/19/2012 - 11:33 | 2811304 lsbumblebee
lsbumblebee's picture

Art forgot to mention that the Fed ran the small local country banks out of existence. But hey who's counting? Rum and Cokes for everyone.

Wed, 09/19/2012 - 11:34 | 2811309 aint no fortuna...
aint no fortunate son's picture

Is the rest of the Fermentation Committee in agreement w/ Mr. Cashin?

Wed, 09/19/2012 - 11:36 | 2811322 Cognitive Dissonance
Cognitive Dissonance's picture

Shhhh

The (market) spirits are about to speak.

<Now pull that rabbit out of your hat.>

Wed, 09/19/2012 - 11:49 | 2811376 Lost Wages
Lost Wages's picture

Speaking of contrarian indicators, I feel like giving up and buying equities, which means it might be time to sell. ;)

Wed, 09/19/2012 - 11:54 | 2811401 Watts_D_Matter
Watts_D_Matter's picture

So Art "Crashin" thinks we are heading for a fall....HA   Too many crooks on Fraud Street will prove him wrong..it's a rigged casino....I look at my little Central Bank stock of Gold and Silver...Protected by my friend..45 Cal....

Wed, 09/19/2012 - 11:55 | 2811405 AbbeBrel
AbbeBrel's picture

 

National Convention

 

Wed, 09/19/2012 - 11:56 | 2811406 gjp
gjp's picture

No big fireworks so far, unless you consider the renewed grind higher of the usual suspects: AMZN, CRM, WFM, LULU etc. all up 1%-2% on this quiet day.  Once you shed the valuation shackles, there's no stopping the momentum in Benny Bux World.

Wed, 09/19/2012 - 13:04 | 2811704 Squid Vicious
Squid Vicious's picture

Yes, we are in a Brave New World where valuations don't matter and the market never goes down... if the S&P ever gets below 1450 again I will be shocked, seriously... thanks to the Shalom et al. 

Wed, 09/19/2012 - 12:22 | 2811514 slaughterer
slaughterer's picture

AAPL/QQQ rebalance would create a panic, no doubt.  Yet AAPL options market is pretty smug.  

Wed, 09/19/2012 - 12:31 | 2811550 bullmkt
bullmkt's picture

Wasnt Cashin the one who was all-in short stocks  around sp 1200?

Or was it Biedermann( who  Durden like to quote too) recommended this to all his customers? Both are lame and lack simple chart reading skills.Guess both are still short.Like Durdern LOL.

Wed, 09/19/2012 - 13:39 | 2811859 gjp
gjp's picture

Amazning that this smug, technical, tea leaves analysis lording it over those who speak the truth about the economic fundamentals if not the manipulated market could get 3 up and 0 down here on ZH.  Looks like everyone's thrown in the towel?

Wed, 09/19/2012 - 13:16 | 2811760 Jake88
Jake88's picture

Yawn...bullshit!!!!

Wed, 09/19/2012 - 13:47 | 2811889 The worst trader
The worst trader's picture

Nothing matters...........BTFD

Wed, 09/19/2012 - 14:22 | 2812090 Grand Supercycle
Grand Supercycle's picture

Due to QE3 and short covering spikes, all these daily charts are extremely overextended & significant correction expected very soon ~SPX,NZDUSD,GBPUSD,AUDUSD,COPPER,CRUDE,GOLD,SILVER.

http://www.zerohedge.com/news/2012-12-24/market-analysis

Wed, 09/19/2012 - 14:51 | 2812258 Remington IV
Remington IV's picture

Art Cashin .... are you right about anything ???

Wed, 09/19/2012 - 14:58 | 2812297 The Count
The Count's picture
  • Just about all publicly known technical indicators and chart techniques have been milked for all they are worth. Sure once in a while one or the other actually appears to work but you can't make money with any of them consistenly. This from a guy (me) who wrote a book on technical analysis years ago and now works for a major hedge fund. In other words, its all mumbo jumbo since about 2000 onwards yet we still see idiots on TV giving us their 'analysis' of the markets. There are effects that can give you an edge but nobody actually making money will talk about them. 
Wed, 09/19/2012 - 19:40 | 2813326 Doomer
Doomer's picture

"... September 22nd happens to be the usual date of the Autumnal Equinox…the day that the earth crosses the Sun’s equator going south ..."

An astronomer Cashin is not.  The equinox has nothing to do with the Sun's equator.  It is simply one of the two moments during the year when the the axis of the Earth is tangential to the path of the Earth's orbit, i.e. the Earth is not tilted towards the Sun

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