We made it through unemployment Friday. By the way, its always the first Friday of every new month. So we have 11 more of these ASININE productions put on by the info-tainment reporters on cable. Many of the analysts with trading backgrounds I have a lot of respect towards.
Its the reporter, or the analyst whose experience has been sales based ONLY that make me cringe. Its just a pet peeve of mine. So from time to time, since this is MY blog, I will vent accordingly.
That being said, I also like to use the emotions on the part of the reporter’s as a good gauge, and very often, as a reverse indicator of what the market is really going to do.
I have found this via print, radio, and TV reporters. I can remember my first foray into trading, back in 1991, I put one of my first bond trades on, because I had read an article that morning on the way to work talking about how the fundamentals were bullish for bonds if the unemployment number was higher than expected. It meant the fed would ease further to try to stimulate job growth. (Back then, 30 year mortgages were great if you could get under 10 percent, lol) so the fed had a lot of room to ease. A quarter point ease, lowering the interest rate, meant that your bond which had a higher coupon rate than the rate after the easing, would obviously be worth more, because you were getting a higher rate of return on a gov. guaranteed bond. It made perfect sense to me. The number came out higher, and I bought a bond and promptly lost almost a full point. A full point on a bond is 3,125. Not a nice way to start a week.
So that was the first thing I learned about trading off of a story in the WSJ. I saw it again and again, be it in the WSJ, the Chicago Tribune, or what have you. An article in the financial paper touting a bull market in the grains was always good for a 10 or 15 cent fade. 10 cents on one grain contract is 500 bucks, so it was profitable, very often to fade the papers.
That is an idea I hold dear til this day.
Peter Lynch, in his book, noted how he used people’s reaction to him at cocktail parties. As soon as he said he was in stocks for a living he could tell by their reaction weather the market was oversold or over bought. If the doctor or lawyer cordially moved away to another conversation, Lynch new, the market was over sold. If he was swamped with stories of how so and so’s brother in law just bought a sailboat from his stock market successes, then he knew it was time to start moving to cash.
If you want to read a great book about investing in general, I suggest One Up on Wall St. It was written 25 years ago, but the themes are timeless.
For all the pundits and analysts who ignore the significance of round number’s, I can only ask, Why? Aren’t we all looking at 1,000 gold to see if it will hold? The media gets excited every time the crude oil moves in 5 dollar increments, not in 1.10 cent increments. We traded below 70 dollar oil, and the dollar broke above the 80 dollar level…Round number’s attract order flow as well. 9.00 beans, 4.00 corn 5.00 wheat…
Use that fact in your trading campaigns.
I have decided to just write exactly what I am thinking on this site, and come what may. If you like the analysis, then tell your friends, please. Right now I am doing one solid comment a day, rather than 3 or 4 mini ones. From time to time I will now be talking about specific trades for the day.
Use them at your own risk.
I leave all of my blog entries on this site. Feel free to go back in history and see if my analysis was any good. I personally will put my ideas and feel up against any one’s. Execution is the hardest part in a trading campaign for me. Patience and the ability to just let a trade alone and let it develop has been hardest for me.
While I was on the floor, that characteristic was very beneficial. I was always willing to flip my position and take advantage of the next short term move. Off floor trading, with out visual cues from other traders, as well as the noise factor which went along with the markets, is something that I miss from a trading standpoint. I always was able to get a good feel for when a market had turned during the daily trade. Quite honestly, as a scalper and market maker, very often I found myself buying the high or selling the low of a move. However, 8 times out of 10 I would flip out and take a small loss, and then re-enter the market on the right side.
Screen trading is very different, because of the choppy nature of the trade. It can also be very hard to gauge the real size of orders on the bid or offer.
So, I have been shifting to much more technical trade. Put the trade on, enter you stops simultaneously, then don’t watch the market incessantly. Look at it every 10 minutes, tops.
So, what’s up with these Markets?
The funds are puking their long gold and long crude oil. The dollar rally is making every thing in America, from our steel to our stocks, more expensive for the rest of the world.
Base metals are sitting on their lows, by base I mean copper, zinc, aluminum. The metals of manufacturing world wide are hinting that the demand isn’t there yet.
All in all, the only commodities which are still hanging in there are the ones which have risk due to the vagaries of the growing season. No one in Washington DC can control the weather yet. The flow of information, the flow of money, the security level at the airports, yes they can control that. However, they can’t control how much rain and how hot the Summer will be. They cant’ control the supply of crops, although they can fudge the numbers to disguise the inevitable S/D numbers with endless “revisions” of “final” numbers for production and acreage under cultivation.
But try as they may, they can’t control the weather. So that uncertainty is the only thing left giving the row crops in the US an underlying bid.
Like all markets, sooner or later, the invisible hand of supply and demand wipes away market inefficiencies. Unfortunately, for those positioned incorrectly, or with out protection, that invisible hand can feel like a sledgehammer to the solar plexus.
I think the Dow, if it can continue to settle above 10,000 on a weekly basis, will eventually rally back and punish all of the bears. Your average person resembles Smokey, Yogi and Boo Boo these days, much more than anything else out there. The media is fueling the despair. If it bleeds, it leads, and bad news always gets higher ratings than good news. Right now a financial reporter can’t move 2 feet without finding someone singing the woes of American capitalism, etc etc etc… I continue to feel that this HAS to be a bullish underpinning.
I still think we could climb a wall of worry.
That being said, I am also not stubborn enough not to know that a 50 percent pullback of the 10 month rally isn’t out of the question either. We are sitting on a teeter totter. A move below the 10,000 level opens the door to a test of that 8600 level.
I leave you with my favorite line from a movie I had to watch about 1000 times when my two kids were younger, the movie Babe.
“That’ll do Pig, That’ll do..”
Bulls and Bears make money. Pigs get slaughtered.