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The Daily Dow LEXINGTON, Ky. (May 6): If you watch CNBC frequently (as I do), one recurring theme you've heard for the first months of 1996 is market volatility. Almost daily it seems, program trading curbs kick in on the New York Exchange. (The first level of Program Trading curbs are activated to "settle" the market whenever the DJIA is up or down 50 points during the day.) The CNBC staff has made a big deal about reporting the number of times such curbs have been triggered for the year.
Does this mean the market's in a frenzy? Should Fools everywhere dive for cover and safeguard their hard-earned funds in CDs and mattresses?
Of course not.
The problem with the market curbs being tied to a certain point movement on the Dow is that the regulation was a short-sighted one in its inception. When the trading curbs were instituted, a 50-point move on the Dow was a significant movement. Today, it's not even one percent. And for those of you invested in stocks outside of the DJIA (Iomega rings a bell), a one-percent daily move is more the rule than the exception.
For everyone to get worked up about program trading curbs kicking on for a 1% move in the market is like rushing your child to the emergency room every time she sneezes. You'll be there an awful lot and the only thing you'll accomplish is wearing out your car and the hospital staff's patience.
The answer, of course, would be to revise the trading curbs to reflect percentage moves rather than moves of a fixed number of points. But then again, we're still talking about a system that quotes some stocks in 64ths. Need I say more?
Anyway, don't believe the hype that the market is somehow overly volatile because the trading curbs kick in. If anything, they're in the way rather than a protection at the 50-point level.
No earth-shattering news on the Fool Four front today. Kodak is building up its online presence with a gift store on the Internet. The latest addition is for auto racing fans. At Kodak's web site (http://www.kodak.com), racing fans can browse and electronically purchase Kodak Film Racing-themed merchandise from its online Giftshop. The Giftshop is a pilot program designed to begin exploring customer response to electronic commerce.
The market wasn't impressed and Kodak was clocked for the day. I suspect the drop is completely unrelated to this announcement, but maybe they should visit FoolMart for some ideas anyway!
Transmitted: 5/6/96
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THE FOOLISH FOUR MODEL (5/6/96) |
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