First of all, you concede that there are correlated pockets of invisible buyers and sellers whose arrival is gradual across time. Were it not for "trend traders" attempting to extrapolate immediate price changes, charts would be serially correlated.


Next, it follows quite clearly that, if all these trend traders are evolving independently, and yet they are reacting to the same signals on the same charts which also reflect the price moves created by their actions, that they must evolve a complex handoff and cooperation process, which can be considered an ecosystem.


As such, it is easy to visualize how, with such a huge upswing and reversal as we saw in November of 2001, the traders who had evolved to extrapolate the first fast blips in either direction would have expanded in wealth, while the traders who then take a handoff of their inventories, if the first blip holds, would have contracted in wealth, by buying at the high and selling late on the way down.


If we assume these fast traders are people who enter when some move in less than, say, the 5-day timeframe gets large relative to the range in a shorter timeframe - and if we assume these slower traders are traders who enter when, say, the 15-day move gets large relative to the 5-day range - it then makes sense that the 5-day and shorter ranges would widen - as the overpopulation of fast traders chops itself up and down in a vacuum of moves like the one huge one they evolved around - relative to, say, the 15-day range.


When you say it was a great example of efficient markets without being more specific, I cannot imagine what you mean. What was the enormous change in information between November 1 and November 15? I would argue that, quite the opposite, the reaction was anything but efficient, and the reason why was the magnitude of the news, combined with a one or two unfortunate chart coincidences.


As I stated, for traders to evolve independently and yet cooperate, they have to each learn some precision of sorting as to what signals they will take and pass up, so that a sort of spontaneous division of labor forms. Considering intraday S&P's, some traders may buy or sell the first blip of a move, the source of which is generally kept as concealed as possible from Wall-St. friction-desk operators.


If the first up-blip holds, the inventory may be handed off to a group of traders who buy an absence of pullbacks. If it continues on upwards, the inventory may be handed off to "breakout" traders who buy moves that are large relative to recent trading ranges, or relative to the time of day. Some percentage of the population of extrapolators learns to step off at off-peak times of day, where the underlying correlated pockets of buyers and sellers are generally not as big.


Most news in the S&P's is scheduled so, quite often, the shortest or fastest-trigger extrapolators will attempt to trade the 10:00 AM ET numbers, but the 5-minute timeframe traders will step back, in favor of the manned desk traders, who have better direct visibility into contingent insitutional demand based on alternative news outcomes. But after 9/11 you had this enormous post-news trendiness, so very quickly everyone learned to jump on the novel stream of unscheduled news.


As the trendiness faded, but the anthrax news kept coming at random times, it created this problem where news buyers and chart extrapolators would both hop on at the same time, as they hadn't had time to evolve a division of labor, or sort between the appropriate collective size of participation. And so it would trend after the news hit, as all the extrapolators hopping triggered each other, but were smeared out across time, and then the market would reverse.


So what we had in the Bond last November was an existing uptrend, which meant all the longer-term trend followers were already long, when an outsized or uncommonly large news event hit. The expansion of the daily range...


I won't go into detail, but you get the idea. Efficient means a bunch of blind robots who, if they get strobed with some chance, non-standard combination of stimuli, will fall out of step with one another, so that some collide and die. Afterwards, cooperation along pre-existing lines between the remaining or new relative assortment robots will produce a different texture of chart.


If, by efficient, you mean that when the big Bond news hit on October 31, 2001, that everybody knew exactly how many bonds everbody else now wanted to buy, and they were able to coordinate and match off inventories in anticipation of one another non-redundantly, you couldn't be more wrong. But I know you can't mean that


So what did you mean when you called it "a great example of efficient markets?"


eLROY