Saturday, October 30, 2010

Bad News, Good Action

The basic Idea of bad news good action goes against all life principles.  I got off the phone with a broker friend of mine the other day and realized how well my education as a speculator has developed.  I mentioned how I got out of my short treasury trade feeling that it was not the right time for the big sell off.  It was a profitable trade 10% in two weeks but time to take profits.

He started to say something about how the federal reserve is pushing bond prices up/yields down which is very clear but has been very clear for too long in my opinion.  My opinion does not matter, price does.  The market is logical until it is not and most of the time it acts illogical.

Our thought processes were defined in 5th grade science classes and this is why 95% of people are terrible investors/traders/speculators.

We think like this:

I'll never forget talking to one of my friends not long ago who is a smart guy, the accountant type.  He mentioned if he had a good some of money he would do a ton of research and figure out a good investment/stock.  By the time he goes through all of the above, the institutions would be selling or he would of missed at least half of the move.

My point is, be careful what you learned in 5th grade science class, it won't make you money playing this game.

"You see that all the time. If there is a solid bull foundation, for instance,
whether or not what the papers call bull manipulation is going
on at the same time, certain news items fail to have the effect
they would have if the Street was bearish. It is all in the
state of sentiment at the time. In this case the Street did
not appraise the extent of the catastrophe because it didn't
wish to."


So, let's look at Friday were there not bombs targeting the U.S.?  The market closed flat.  A pure example of bad news, good action.  These examples happen all the time and are in fact a great way to get a temperature of the market.  

I'm positioned for a 5-8% drop in Crude Oil Prices since $83/barrel.  Fridays action further convinced me, we saw the dollar drop and oil prices drop.  From the perspective of Texas Tea that was good news/bad action which is a good way to gauge the temperature of Crude.  82.00 looked like strong resistance for WTIC.  (please note there have been times where the inverse relationship between the dollar and crude does not exist.)

Ask yourself the question pertaining to this $83-84 level in crude from and investors/trading perspective.  How good of a trade could this be if everyone and their cousin can purchase this commodity at this price?  We have been sitting here way too long, if it were going to break to the upside it would of already.  My target is $78 and I would be willing to get long at $76.

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