I mentioned on Tuesday afternoon that I did not believe the market weakness was due to Ukraine Russia tensions. From Art Cashin, UBS head of floor trading, and a 5o-year veteran of the NYSE floor, expresses the sentiment much more eloquently than I:


One Of These Things Is Not Like The Other – Or – Why The Ukraine Headline Does Not Pass The Sherlock Holmes Test

This marks my 50th year as an NYSE floor broker. (I entered the world of finance in 1959 and by 1964, at the tender age of 23, had a seat on the Exchange.)

One of the first things I learned, even before the seat, was that a good broker needs to be a good detective, to look behind the easy or the obvious by comparing the reaction of different assets. Yesterday, I believe was a classic example.

As we walk through the action step by step, recall Monday’s action. We had said that if markets moved higher than Monday morning’s highs, the market would rally and so it did. With that as a backdrop, let’s look at Tuesday.

As suggested in the Comments, stocks opened lower, circled the wagons around 10:00 and then began a lot of churning and testing. Shortly before 11:00, I sent this note to friends:

Stocks zig and zag in response to moves in yield of the ten year Treasury. Equity types worry that bond vigilantes will seize the initiative from the Fed as firmer economic data shows up. The real goal posts sit at 2.44% and 2.65%.

Geo-political antennas are on alert.

The market kept testing itself and tried to find a trend. Shortly after noon, I sent this follow-up note:

Some buzz that Putin may restrict Siberian airspace to Western airlines, lengthening their air routes and raising fuel cost vs their eastern competitors.

On stocks, this morning’s low (Dow 16474; S&P 1926) now becomes a target for the bears.

Run rate at noon projects to an NYSE final volume of 650/730 million shares.

The markets continued its testing, with the bulls unable to produce any real bounce after the repeated testing of the morning lows. That was a worrisome sign and, at 1:15, I wrote this cautionary note (which, due to a mechanical glitch was not fully disseminated):

Dow and S&P hold just above the morning lows, so far. Yet, there has been no attempt at a double bottom bounce.

Oil sector weighs on market with Chevron and Exxon accounting for nearly 1/3rd of the Dow drop.

At any rate, the game is still on the table. Radio silent at 1:30.

I may have gone radio silent at 1:30, but the markets certainly did not. Stocks retested the morning lows and, when they broke through, a trapdoor opened. At nearly the same time, there was a statement by Polish FM, Sikorski, suggesting that a Russian invasion might be imminent.

Now comes the Sherlock Holmes part. In Silver Blaze, Holmes deduces that a missing horse was stolen by an insider because of something that didn’t happen. The dog didn’t bark so it could not have been a stranger. There were several things that didn’t happen yesterday.

In a classic reaction to a headline of a looming invasion of Ukraine by Russia, several things might happen nearly instantaneously. Stocks would plunge (check). Yields would drop (mostly). Gold would soar (not really). Oil would soar (it remained weak). I think the cumulative evidence suggests the bulk of the stock fall was due to internal technicals and not the easy, convenient and coincident comments by Sikorski.

The S&P even took out its Friday low of 1916, reaching 1913 which, conveniently, was the ultimate target of the broken head and shoulders I discussed a week or so ago. The closing volume at 702 million shares was hardly a stampede.

Category: Markets, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

5 Responses to “Why The Ukraine Headline Does Not Pass The Sherlock Holmes Test”

  1. Arequipa01 says:

    The reference to ACD’s story ‘Silver Blaze’ is a wonderful option and demonstrates that Cashin didn’t get where he is on looks alone. The solution Holmes arrives at is done through abductive reasoning.


    In this article, in which some Daily Beast author seeks to cross swords with Holmes’s detective skills (an odd option, given that Doyle was consciously and specifically creating a piece of fiction meant to entertain first and instruct second), there is some good information and food for thought, however, resist the temptation to accept the author’s (borrowed) conclusions regarding abductive reasoning.

    Abductive reasoning is a fundamental skill and its exercise centers on anomalies. Those who would lead others to discount anomalies have an agenda. Additionally, those who interact with financial markets know full well that one acts on imperfect and incomplete information (and limited intellectual capacity, even the geniuses come up short on occasion), and as such, one must recur to this approach more often than one might prefer. I suspect that game theory applications as regards common knowledge could be used to great effect in sharpening one’s abductive reasoning skills.

  2. faulkner says:

    The Ukraine Headline is a nice demonstration of System 1 in action. Start with, “A big effect requires a big cause.” (It doesn’t, but this is how our System 1 sees it.) Combine this with, “Post hoc, ergo proptor hoc.” (“After this, therefore because of this”) and, presto, you have clear and vivid images, and a story. Now, repeat it until it’s familiar, that is, feels real and true.

  3. Singmaster says:

    Arequipa01 comment is substantial and well considered.
    Mine isn’t. I’m just going to write that once, years ago, I saw graffiti on a billboard in Portland Or reading:
    Bruce Springsteen is God.
    To my mind, Art Cashin is God.
    When Art Cashin speaks, people listen… or ought to.

  4. Arequipa01 says:

    @ Singmaster- Thank you (unless of course you’re being sarcastic and cryptic in which case I am willing to accept it in the spirit of fun as a harmless bit of ribbing- all this based on my conclusion, reached through abduction, that one who mentions Bruce Springsteen positively cannot be all bad and as such is deserving of … Jesus, all this abduciton and metareasoning is exhausting).

    Anyway, here is a recent dissertation out of OSU titled: Anomaly-Driven Belief Revision by Abductive Metareasoning


    At the very least the abstract merits a read-through.

  5. Arequipa01 says:

    Here is a recent dissertation out of OSU titled: Anomaly Driven Belief Revision by Abductive Metareasoning.


    I recommend at the least a read through of the abstract.