From legendary short seller to god of American capital

Chapter 374: A One-Time Drop of 500 Million Bushels Interrupts the Upward Momentum

Sunday afternoon, at the Palmer House Hotel in Chicago.

In the hotel lobby café, under the arched glass dome, crystal chandeliers bathed the afternoon sunlight in a warm golden hue. Larry sat on a velvet sofa by the window, several freshly drawn candlestick charts scattered beside his black tea and silverware.

Matthew tossed aside his red and blue pencils, stretched his hands, stared at the wheat futures candlestick chart he had just drawn, and said with a wry smile, "Mr. Livingston, without your analysis, I'm afraid I wouldn't be able to guess why things turned out this way today."

Matthew pointed to the most recent candlestick. This was Saturday's candlestick, a large bullish candlestick that gapped down and then filled the gap.

Larry smiled and bent down to examine the candlestick chart closely. He nodded and said, "My brother, you have a real talent for candlestick charts! They're incredibly accurate."

"Get to the important part! I already know the stop-loss line is oversold and has reversed, but how did I sense there would be a rebound that day?" Matthew urged.

"Okay! I'll definitely tell you everything I know," Larry said with a smile, looking at Matthew. "But first, you need to answer me: how's it going with Cargill?"

Upon hearing Larry's question, Matthew replied solemnly, "They've already registered warehouse receipts for 500 million bushels of wheat, and they can sell them on Monday!"

"Are all the programs working correctly?"

“Absolutely no problem! This morning, I checked it with Mr. Cargill’s son-in-law. Actually, they were even more anxious than we were. They’ve been wanting to get rid of that stockpiled wheat for a long time,” Matthew said with a smile.

"It should have been like this a long time ago!" Larry said casually, recalling how William Cargill had given him the cold shoulder when he first came to Chicago. "With their 500 million bushels of wheat, we could have sold them all at once on Monday when the market opened higher!"

Matthew's eyes lit up. "Are you sure it will open higher on Monday?"

Larry nodded and said, "The gentleman we visited yesterday has agreed to mediate between the labor and management sides. With him involved, it can't go wrong." Matthew nodded in agreement, "Then it can't go wrong!"

Larry pushed a cup of black tea towards Matthew, stirred it with a small silver spoon, took a sip of the sweetened tea, and then pointed to the candlestick chart on the table, saying, "You drew it very accurately. It opened at $1.18, hit a low of $1.08, and finally closed at $1.23—it's like Mr. Market suddenly went mad, plunged into hell, but was then steadily pulled back to earth by an invisible hand. The key is in this lower shadow line—"

Larry tapped the "needle" on the candlestick chart and continued with a smile, "We said before that $1.08 has a special meaning—"

"That's the liquidation point for a long position with 10x leverage!" Matthew blurted out.

"That's right!" Larry snapped his fingers. "This lower shadow line doesn't primarily depict technique, but rather rules and humanity."

It was the exchange's margin call rules and the innate human fear that together drew this line. The chart shows the result, not the cause.

Charts show results, not causes!

Matthew pondered those words, and a sense of enlightenment seemed to dawn on him.

Larry continued, talking to himself, "So you have to think outside the box. What I want to emphasize to you today is that what's special about today's market isn't how perfectly long this line is, but that this is the first sharp drop since this rally began!"

"You mean, this is the first dip in a bull market?" Matthew's eyes lit up.

"Right! You have to think of it this way: if a bull has just charged forward, do you expect it to trip over a small twig and completely give up and go back to grazing?" Larry waved his hand with a smile. "Impossible. A change in trend takes time. It's like a giant ship moving at full speed. If it wants to turn around, it has to slow down and circle first. It can't make a 180-degree turn immediately."

Saturday's seemingly terrifying plunge, if it occurred early in a bull market, would likely have triggered a major sell-off. However, this wheat bull market has lasted for three months—a consensus of bullish sentiment has formed, and even those who sense unusual market movements are compelled to buy to support prices.

Matthew nodded. "So you mean that precisely because it fell so sharply and rapidly, it washed out the weak hands, which is why it rebounded so quickly!"

"Yes! But not entirely. You have to understand that futures are two-way. Short sellers have been struggling for three months, so they're not entirely confident about short-term declines. When they cash out, they contribute a lot of buying pressure—which is one of the reasons that has driven the stock price back up."

Matthew stared at the candlestick chart and slowly nodded. "So you're not gambling, you're calculating the rules and probabilities!"

"Not entirely. Calculations can certainly increase the probability, but the market always has uncertainty." Larry's face turned serious as he continued, "That's the power of trends, but trends can change due to fluctuations—but the most crucial thing is—tomorrow. Only after selling our Cargill position will we proceed with the real trend-reversal trade—"

Matthew suddenly realized something and asked, "Is this why you were looking at the futures exchange rules those past few days?"

"You could say that!" Larry chuckled softly, his laughter ringing out clearly in the quiet afternoon air of the tea room. "So never just follow the price; you have to be ahead of the rules, ahead of human nature—and of course, ideally you'd have a partner who understands your intentions and helps you manage your positions without your hands trembling!"

Matthew was taken aback at first, then he laughed too.

At 8:30 a.m. on Monday, Larry led the entire team, except for two young Italian men, and headed to the Chicago Mercantile Exchange.

Larry left Tiger and Snake outside while he led Matthew and Dunbar through the marble colonnade into the trading hall.

Although there was still half an hour before the exchange opened, the trading floor was already filled with a tense atmosphere, as if a storm was brewing. Some floor traders gathered in twos and threes, exchanging inside information they had heard.

Larry turned to Matthew and said, "That gentleman's deal worked out. There'll definitely be a gap up at the open! Then we'll sell all the Cargill wheat warrants!"

"They'll sell for 500 million bushels?!" Matthew asked.

"Yes! That locks in the price of wheat!" Larry dusted off the front of his suit jacket and said nonchalantly.

As the clock struck 9 o'clock, the opening bell shattered the heavy atmosphere.

The first price appeared on the quote board—stimulated by the resolution of the North Pacific Railroad strike crisis, the main wheat futures contract jumped directly to $1.28.

A tidal wave of gasps erupted in the trading hall. Bullish traders hugged and celebrated wildly, while the bears, who had been unwilling to accept their losses on Saturday, turned ashen-faced, for they had lost money.

Larry's gaze was firm. He turned to look at Matthew in the distance, slowly raised his right hand, and showed him three fingers—this was the secret signal they had agreed upon for the clearance sale.

Without further hesitation, Matthew turned around and instructed the traders in the market to sell all 500 million bushels of wheat.

Upon hearing this instruction, the trader was taken aback, thinking he had misheard the number and unit. "Did you mean 500 million bushels?"

"That's right! Sell at market price!"

"But it's still going up!" the trader said anxiously.

"Execute my mandate!" Matthew didn't waste any words with him, simply repeating it in a cold tone.

The trader dared not hesitate any longer, quickly filled out the order form, and immediately sent the order clerk to the trading floor to place the order.

On the other hand, Larry also called Dunbar and asked him to close out all the positions in his two small accounts.

"Uncle Dunbar, you stay there, and if I give you a thumbs up, you make them short sell again—"

"Close the long positions now. If you give me a thumbs up, I'll let them establish short positions—" Dunbar repeated, "How many lots to short?"

"Still half position!" Larry answered decisively.

Meanwhile, on the price commodity exchange floor, Stone had received a short-selling order for 500 million bushels from Larry.

Old Stone stared at the order form, speechless with astonishment. "My God! Has that kid gone mad? He sold 1000 in one go!"

hand. "

An assistant next to him craned his neck in surprise, checked the numbers on the transaction slip, and muttered, "It really is 1000 lots. That's 500 million bushels of wheat! At the usual prices, it would be impossible to sell—it would be sold at a huge discount."

"Is the order correct?" Old Stanton asked the deliveryman to check.

"That's right! Your son has confirmed with the customer several times!" the sales clerk affirmed.

Old Stone had recovered from his shock and nodded, saying, "But that makes sense—if we want to sell such a large quantity, now is definitely the best opportunity—because the floor is full of buy orders right now, making it possible to sell so many without a discount—enough said! Anyway, we earn commissions. 300 lots each, I'll take 400 lots, let's go to the floor now and sell!"

As he spoke, old Stone, accompanied by his youngest son and son-in-law, charged menacingly towards the floor traders holding long positions, ready to buy.

Thus, those waiting outside in front of the price chart witnessed a strange sight—despite the fervor of the crowd, people believed that futures prices would continue to rise.

And many people placed market buy orders because they were afraid that if they entered the market at the opening price, they wouldn't be able to buy wheat.

But strangely, the price on the quote board remained unchanged at $1.28!

The price remained stagnant for a full seven minutes before the latest price came out—it had actually dropped to $1.275!

It didn't go up! Instead, it went down by 0.5 cents!

The traders and spot dealers in front of the quote board were all filled with doubt—but they didn't know that the market was even more chaotic at this moment. The sell order of 5 million bushels had stunned those who held small orders of 500 or 10 lots.

Old Stone roared and gestured for sell to the floor traders holding long positions, hurling insults at them, "Come on, you bastards, hand over all your long positions! Uncle Stone, we haven't had enough to eat here yet!"

Some traders on the floor had already noticed something was wrong; they had all noticed that Stone's short positions seemed endless.

People murmured amongst themselves, "Have all three of Stone's employees gone mad?"

"It's probably not their own order, but rather a client's!"

"What kind of customer can sell so many items at once?! Is there something else going on? Is there something we don't know about?"

When the first large short order was placed, Larry had already instructed Matthew to sell all remaining long positions.

When the price fell below $1.27, Larry gave a thumbs-up to Matthew and Dunbar in the distance, a signal that he was shorting the stock in his own account.

By the time the 500 million bushels of wheat were finally sold off, the price had already fallen back to $1.26.

-

At the opening bell, the market was as excited as a red-hot iron, but now it seems to have been doused with a bucket of cold water and sobered up.

People in front of the price board became anxious again. Due to the crowds and overlap, the trading hall now felt like a steamer, filled with suffocating heat and unpleasant smells.

"Got it?" Larry tossed his sweat-soaked handkerchief into the trash can and turned to Matthew, who had rushed back. "Now is the best time for Cargill to enter the market with 500 million bushels. The market will use the strike news to drive up prices, we'll short Cargill's warehouse receipts, and when those jittery traders panic again, we'll reverse course and short again!"

Matthew stared at the price chart, nodding repeatedly. "I'm afraid those insider traders were hoping the market would continue to rise."

Larry chuckled coldly. "There are still two weeks until the spring wheat futures contract expires—it's time for the market to face the truth. Let's go; I've already arranged the rest for Mr. Dunbar."

He'll spread the news of Cargill's wheat dumping to three brokerage firms after the market closes at midnight! I reckon by the afternoon, all of Chicago will have the news —”

Matthew nodded. "Yes! This is what you called data pollution, or rather, giving the market a truly shocking 'timely news' when they need explanations!"

The two strode to the outside of the exchange. Larry called Tiger and Snake over, and the four of them headed to Taylor Corporation.

The four of them walked to the entrance of Taylor Company at 133 Canal Street. Larry reached out to block everyone else and squinted to look inside.

He immediately spotted the red-haired man at the St. Louis counter, now speaking to the manager. Larry instantly understood that the manager had informed headquarters of what had happened, and Taylor had sent his trusted aide to investigate.

"Oh! It seems Taylor got the news—" Larry smiled.

"Won't it be dangerous?" Matthew asked, instinctively rubbing his arm against the pistol inside his coat.

"Not now, since it's noon. But it might be different tonight! Mr. Brady, you stay outside. The three of us will go in," Larry instructed.

So, Tiger stood guard outside. Larry, Matthew, and Rattlesnake Cole entered the betting house.

The trading hall was still bustling with activity, with more than twenty "easy targets" gathered around the price board looking at stocks. No one noticed Larry and his two companions entering.

As soon as the three entered the gambling den, the teller, the manager, and the red-haired man all stared at them.

"I'm here to settle my balance!" Larry said with a smile as he walked to the counter.

"Is this the person?" the red-haired man asked, turning to the manager.

"Yes!" the manager replied, then pulled a wad of yellow banknotes from his pocket.

"Wait a minute!!" The guy from St. Louis stopped the manager, then turned to Larry and gritted his teeth, saying, "Hey! Gambler, didn't we tell you we don't want to do business with you?"

Larry ignored him and turned to the manager instead. "Give me the money first!"

The manager glanced timidly at the red-haired man, but with all the customers in the trading hall, he couldn't very well renege on his debts, so he started counting the money anyway.

"Sir, this is your remaining profit, $9380!" The manager put all the money into a thick brown paper bag.

Larry didn't take it, but glanced at his pocket watch and said slowly, "It's been over forty hours since Saturday noon. At the very least, with a daily interest rate of five percent, the safekeeping fee for this money is six hundred and twenty dollars. I'll round it down for you; it's ten thousand dollars in total."

The manager's lips twitched violently.

The red-haired man gritted his teeth and took half a step forward, his nose almost blowing directly into Larry's face. "—You fucking pushing your luck!!"

The two were on the verge of exchanging blows.

Matthew and Cole also stepped forward, standing protectively beside Larry.

Larry gently pushed the red-haired man away, straightened his clothes, and suddenly asked, "Has Mr. Taylor arrived? Let him come out and speak!"

After he said that, both the red-haired man and the manager were stunned and involuntarily looked towards the office.

"How...how did you know?!" The red-haired man turned to look at Larry, asking incoherently.

Before Larry could say anything more, the office door opened, and a man with an arrogant expression walked out. He was very tall, wearing a white suit, and followed by seven or eight men.

"Mr. Taylor!" the manager exclaimed.