The Glass Elevator Analogy
August 17, 2012
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My Schedule…and A Little Extra: DON’T LET YOUR LOCKS EXPIRE WITHOUT CONSULTING ME FIRST!
My Schedule: I am working from home all morning and then out this afternoon but available….
My Market Watch: The Fannie 30-year bond is dancing on a floor of support and the question is, will that floor become a ceiling? Phil, what the heck are you talking about? Well, think of bonds as a glass elevator…when traders buy bonds the glass elevator goes up and when it sells it goes down. Now, if you visualize the glass elevator, when the elevator goes up it goes past ceilings and when it goes down it goes past floors, right? Got that? Okay, from afar, you don’t know whether the elevator will go up to the top floor, or just up one or two floors before coming back down. But you do know that each time the elevator reaches a new floor, there’s a chance it might slow down and stop. That’s how traders look at the market. There are established floors and ceilings called moving averages. As the bond trades it goes up and down near these floors and ceilings. Traders know if the elevator goes past a floor, the next opportunity for it to stop is at the next floor up or down. So, they trade accordingly…they might buy more thinking it will keep going up and then when it nears the next floor they start to sell in anticipation of heading down in the opposite direction, and vice versa. Right now the bond is trading right on the 100-day moving average (S1) and traders are trying to figure out if it will go up or down. They are thinking, will the elevator go up to the next floor and should I buy now? Or, will it go down to the next floor below and should I sell while I’m ahead? Can you dig it? Does that make sense? Let me know if you have any questions or comments, okay? WHATEVER YOU DO, DON’T LET YOUR LOCKS EXPIRE WITHOUT CONSULTING ME FIRST! Disclaimer
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