Crikey! The Fed follows the Danielcode!
by John Needham, The Daniel Code Report. January 23, 2008
OOPS! The secret is out. The Fed knows about and follows the Danielcode! Really? In fact YES, even if they don't know it themselves.
The best test of any hypothesis is how it deals with a supposedly random event; the so called "Outliers" or the Fat Tails on a Bell Distribution curve. Long Term Credit Management, Enron, the subprime drama, the problem CDOs and the still to come ARM revulsion party all attest to that.
"Outlier Events" are so called because they lie outside the statistical curve of computed probabilities. This means that they cannot be satisfactorily modeled and are just left in the "Aw Shucks" column of seemingly random events that we cannot foresee, cannot plan for and therefore it’s not our fault guys!
Outlier events are beasts precisely because they are completely unpredictable but they have one redeeming feature; they are the ultimate event to stress test a hypothesis.
Tuesday 22 January 2008 gave us a beauty (Aussie for delicious) of an outlier event in financial markets with the Fed's "surprise" 75 point rate cut. This from MSN Money:
Fed slashes rates
The U.S. Federal Reserve on Tuesday slashed a key interest rate by the biggest amount in more than 23 years in an emergency bid to head off a U.S. recession and halt a global rout in stocks. In a rare action between regularly scheduled meetings, the U.S. central bank cut the benchmark federal funds rate by three-quarters of a percentage point to 3.5 percent.
OK, so the Fed action was 1) an unexpected surprise, 2) it was a "rare action", 3) it was the biggest rate cut in 23 years. I guess that ranks right up there as a financial outlier event. This indeed is a fat tail on that pesky probability curve. In addition US markets had been closed the previous day when Asian and European Equity markets tanked which added drama to the US pre market and RTH open.
So given these events juxtaposing themselves on each other the market consequences will be outside the forecasting or modeling capabilities of most. This makes it a perfect incident with which to stress test the Danielcode hypothesis that the Daniel number sequence controls all markets in all timeframes.
At 4:45PM Tuesday, New Zealand time which is 22:45 or10:45PM Monday, US ET, I posted the following SPX weekly and daily charts for subscribers. There are two separate Daniel sequences on each chart with some commentary on recent days trading. The Daniel sequence is an infinite series of numbers, one of which will turn the market within a very small variance. (For those confused by the timelines, New Zealand is 18 hours ahead of US ET).
You will see 1274.61 as the second number down in the left hand column in the weekly and the fourth number down in the daily charts.
SPX Daily- You can see SPX is switching between the different DC sequences. Wednesday's low of 1364.27 was against DC 1362.82; Thursday's low of 1330.67 was against DC 1332.74 and Friday's low of 1312.61 was against DC 1311.28 in the other number group so every day has been within the +- 3 point variance for this index. Which sequence will it follow tonight?
At about 2:00AM Tuesday, New York time, presumably as the Fed slept I posted the following S&P globex chart
S&P Futures Weekly-Be very careful today. We are close to some important DC numbers on the weekly and daily so be aware of a big gap down open that rallies.
The next target for WP which is the globex prices for the current S&P futures contract was shown as 1257.30.
Tuesday's low in globex was 1255.30 against its Daniel number of 1257.30. The SPX (S&P Index) low for the day was 1274.29 against its daily and weekly Daniel number of 1274.61. So for Tuesday's supposedly "big surprise" of the historic and oh so secret rate cut, the market in fact traded to within 2 points of its Daniel globex number and just 32 ticks from its precalculated Index number (the Daniel numbers are always more accurate for indices than futures due to the premium fluctuation in the futures contract). Followers of the Danielcode articles (see FSO archives) will know that the Daniel numbers are not fibs and are known only to a handful of traders. For practical purposes they are unknown and secret. I say that the Daniel sequence generates numbers that the market recognizes but that are unknown to others. Does this look like market recognition?
On the reported evidence, it seems that we can all agree that the Fed rate cut was truly a surprise.
If so we are left with one of two possible conclusions, either:
1. The Fed and its market makers are following the Danielcode or
2. The Danielcode controls all markets in all timeframes. You decide. What is random to some is precision to others, so the next time your adviser tells you an incident was random, think carefully.
With a 70 point range on globex and 63 points in RTH futures, Tuesday was a monster trade. To grow your P&L you must, must, must get these days. They are the icing on the cake for traders.
Our Gold traders too had a party as Bob from Kansas City explains.
Gold futures came within 845 just a few dollars north on the freefall. Now that is incredible.
The subscribers Gold chart is below. Look like market recognition to you? Danielcode traders were looking for a turn at 849, and got it!
Bob evidently shared my latest article on the adventures of Munehisa Homma, the Trading Samurai with a friend:
Thanks, Bob (nice article on the samurai....my mother's grandfather came from a famous samurai family).
You can read how Homma cornered the Osaka rice trade on Financial Sense's ASIA page (top tab, second from right on the FSO home page) at http://www.financialsensearchive.com/asia/main.html
There is a new fortnightly Pacific-Asian market wrap up for FSO on that page also. It is called "Charting around Asia".
I hope you enjoy Homma's adventures as you ponder how the Fed knew the Daniel numbers for Tuesday!
© 2008 John Needham
John Needham is a Sydney Lawyer and Financial Consultant. He publishes The Danielcode Report and writes occasionally on other markets. He lives with his family in Australia and New Zealand.
"The fox knows many things, but the hedgehog knows one big thing. A Hedgehog Concept is not a goal, intention or strategy to be the best. It is an understanding of what you can be best at. The distinction is absolutely crucial". ~ Isaiah Berlin, The Hedgehog and the Fox