Friday, July 11, 2008

Dramatic Reversal for Treasuries and Interest Rates?

This daily chart for treasuries shows a dramatic reversal. The long red candle shown at the far right is a bearish engulfing pattern. The more prior green candles that are reversed by the long red one, the more likely this pattern is to lead to a bearish downturn in future days. This red maribozu candle engulfs the previous four days' green candles. That's very bearish for treasuries!

Fed Rides to the Rescue Again

Just as I expected in my previous post earlier today, the Fed has rescued the stock market again today by opening up the discount window to Freddie Mac and Fannie Mae. However, this rally is not due to bullish buying. It is purely a short-covering rally, so it probably has little support. This Fed is no longer the lender of last resort. It is now the lender of every resort. Will is also come to the rescue of consumers and small businesses, too?

Dow Holding the Line at 11,000 - Barely!

The stock market bulls have managed to draw a line in the sand at 11000, but just barely. The price of crude oil has backed off from today's new records, but this is providing little comfort for the markets. Even a press conference with Pres. Bush and Treasury Secretary Paulson has provided little support for stock market index futures today.

Sec. Paulson Reassures Markets Again!

Treasury Secretary Paulson has again reassured the financial markets this morning, saying that he sees no need for a bail-out by the Federal government of Fannie Mae and Freddie Mac. This has stabilized that financial markets somewhat. However, we have become accustomed to "just talk" from Washington. I'm skeptical how long this assurance will bring stability to the financial markets.

Catastrophe in the Making

This is huge!

While the Dollar today is collapsing:
The price of crude oil has set more and more new records, surpassing $147/barrel for the first time:
And the stock markets have plunged. It is a miracle the Dow isn't down 300-400 points:


One reason why stocks are plunging, aside from the price or crude oil, is that it appears that Fannie Mae and Freddie Mac are insolvent, according to one of the former Fed governors in a statement this week. What makes this such stunning news is that these two companies were created as quasi-government agencies to provide mortgages for the American people. Fannie Mae alone has mortgage loans on the books for more than $5 trillion (yes, that's trillion with a "t"). Their debt is backed with loan guarantees by the Federal government and the tax-payers are on the tab for the losses. No other company in America has these loan guarantees. This is not just the solvency of two semi-government agencies at risk here. It is potentially the risk of the faith and credit of the United States government! And now, Fannie and Freddie are both insolvent! This is HUGE!

Rumors are even circulating this morning that the Bush Administration is considering taking Fannie and Freddie into receivership because they are so deeply in over their heads.

This truly underscores the gravity of the credit crisis in this country, and the potential economic impact. It is also sending treasuries plunging today because of the implication that it will force the Federal government to sell more bonds and that interest rates will be forced to go much higher. Treasuries have been in an uptrend for the past several weeks, so this is a stunning change for a single day. Here are the charts for treasuries this morning:
No one should underestimate the impact of this situation. This is an earthquake! I would expect some action from the Federal Reserve and/or U.S. Treasury very quickly to attempt to stem this latest crisis. This is HUGE!

Crude Oil Back in Record Territory

Crude oil has surged higher again, nearly reaching $146/barrel during overnight trading. It's up nearly $10 in two days! It should be no wonder that stock index futures are lower. However, even with crude oil rising significantly yesterday, stocks closed higher! That's significant!

Here is an excellent article, well researched and factual, on Congress' role in this energy crisis, and why they are trying to shift the blame. It also discusses what will be the consequences for America. Excellent article by Walter E. Williams. Enjoy!
Congress is OPEC's Staunchest Ally

Thursday, July 10, 2008

Crude Oil: $142 and Rising

The price of crude oil has risen more than $6 today, crushing another attempt at a stock market rally. Crude oil at $142/barrel is incompatible with strong equity markets.

The Iranian leadership has learned that they can manipulate the price of crude oil with a single sentence. By simply threatening to destroy Israel, they have learned that they can add $2-5 to the price of a barrel of oil within an hour. This adds billions of Dollars to their treasuries within a week or two.

With an economy in shambles and high unemployment, the leaders of Iran have realized that they can increase revenues easily and quickly by bellicose talk. If you were desperate to retain power and suppress your people, wouldn't you do the same?

Remember the taking of British soldiers as hostages, the buzzing of U.S. warships in International waters, the constant threats to Israel, the threats to shut down the Straight of Hormuz, and the recent missile test firings? All of these events have driven the price of oil substantially higher within minutes of these event reaching the news wires.

Here we go again!

Crude Oil Spoils the Party (Again)

Higher crude oil prices today appear to once again spoil the stock market party, as the price of crude has surged higher in the past 30 minutes. More terrorism in Nigeria and missile tests in Iran are given the blame.

The Dow rally (see chart) has been cut almost in half! Note that the selling in this chart is more robust than the rally in the last one! Also, now that the testimony of Paulson and Bernanke are complete, the attention of Wall Street appears to have shifted.

Stocks Also Stage a Rally

Stock futures have also now begun to stage a rally -- up 100 points on the Dow. This is somewhat surprising, given that the price of crude oil has risen $2 today. Apparently, stock traders like what they are hearing in the Congressional hearings from Sec. Paulson and Fed Chairman Bernanke. Sec. Paulson has reassured the markets that Fannie Mae and Freddie Mac are adequately capitalized and are not insolvent, as the rumors suggested yesterday.

This rally, however, looks somewhat weak to me. It probably has its legs on relief that maybe the rumors regarding the financials are not as bad as we thought over the past few days. The Lehman Bros. rumors persist, however. If oil continues to rise, it's hard to imagine how it can continue. It looks like more of a relief rally to me. Probably temporary, as the underlying problems aren't going away.

The longer-term daily charts are showing early signs of a possible consolidation pattern setting in, with more rallies one day and collapses happening the next day.

Solid Soybeans!

Soybeans are one of the only futures thus far today that have shown a solid trend for the day. I just love those little beans! Apparently, new stresses in Argentina are fueling the fire. So are plunging stockpiles being cited. Crude oil has rebounded $2 today also, which typically provides support for soybeans.

Trading is expected to be relatively light in the grains today, as many traders square up for tomorrow morning's USDA report.

Crude Oil Uptrend Still Intact

I read an interesting article by Kathy Lien, the famous currency strategist, yesterday. She indicated that crude oil could drop another $10/barrel, and the longer-term uptrend would still remain intact. I decided to take a look at the weekly chart for crude oil, which I have shown here. She was right. The Uptrend for crude oil is still intact despite the strong red candle so far for this week. On the the bullish side, the 7-period and 21-period moving averages are still diverging.

Even still, on the bearish side, I notice that the latest highs for crude oil occurred within the Bollinger Bands, a sign of diminishing upward momentum, and the Klinger Volume indicator has just turned red for the first time in months, although it is stillwell above its moving average as well. The stochastic indicator has been overbought for many weeks, and the MACD is also overbought. Only time will tell.

Crude oil is $1/barrel higher during overnight trading.

Wednesday, July 9, 2008

The Bears Are Back...

and today, they were very hungry.

Today was the first time that the S&P 500 closed in official bear territory. This is possibly the reason we have seen support in recent days. The financial and banking sector is particularly weak.

Treasure Trove of Treasuries

It amazes me that treasuries continue to move higher day after day, thus forcing interest rates down. I suppose that if commodity prices continue downward, the case can be made for the Fed not to raise interest rates at any point in the foreseeable future. This would seem to be bullish for treasuries. Note that the daily chart continues its bull run.

Stock Bull Not Confirmed, Rally Turns to Rout

The stock market bears are back in charge today. The stock market rally yesterday has fizzled, and it appears that the bear market will continue, at least for the time being. Here is today's intra-day charts:
And here is the daily chart that looked like it might be forming a bottom over the past few days. Note today's reversal:

Stocks Prices Lower Along With Crude Oil

This is an interesting phenomenon today, that both crude oil and stock index prices are lower. I have no explanation, but the correlation between the price of crude oil and stock index futures appears to have been broken, at least for now.

Milestone: 1000 Posts

It seems hard to believe that I have placed 1000 posts on this blog since it began in the fall of 2007. Wow! I guess I have a lot to say!

Here comes the orator! With his flood of words, and his drop of reason.” -- Benjamin Franklin

Example Why It's So Hard For Speculators to Control Prices

In this screen capture, I am showing the data window (at the right side) for a 3 minute candle for the DTO ETN. DTO is the new Powershares/Deutsche Bank Double Short of crude oil. This fund is growing very rapidly, and will soon begin to rival the famous USO (long crude oil) ETF that has been around for years.

Needless to say, the price of crude oil has dropped significantly in the past couple of days. However, this candle makes the point very powerfully how difficult it is even for large funds to affect the crude oil market.
Note in this data window the UP volume purchased within this 3 minute period. Since this is an inverse fund, the up volume represents selling (shorting) of crude oil. The previous ten candles had combined total volume of less than 100,000 shares (for ETNs, I believe they use the term "notes" rather than shares). This one 3-minute candle had UP volume -- selling crude oil -- of 506,700 shares! More than half a million shares selling crude oil short within 3 minutes! That is unbelievable volume! And yet, with about a 50:1 ratio of buying to selling on that candle, the price moved down (so crude moved higher) within 5 minutes! Even the huge USO fund (the largest -- so far -- of the crude oil ETFs) had volume at that same moment in time of only about 300,000 shares, and 200,000 of those shares were also selling crude oil, adding even greater volume to the crude selling.

And what was the result of all that buying (shorting of crude oil) in this ETN? The price of the ETN moved down. In other words, all that shorting of crude oil and the price of crude oil went HIGHER, because the value of the ETN notes immediately went DOWN. The two largest crude oil funds sold more than 700,000 shares/notes of crude oil in 3 minutes, and the price of crude oil rose instead!

One of the reasons for this is that despite heavy buying or selling by one very large fund, the effect of that buying or selling is very short-term in its consequences, lasting just a few moments. No matter what the size of a fund's order, it still only counts for just ONE order to buy or sell crude oil. As soon as that fund stops buying or selling, the effect dissipates almost immediately.
The second screen capture (above) shows the volume for the small green candle immediately following the small (red) one I discussed above with more than 500,000 volume (this original candle still is shown with the green arrow in this screen capture). This new candle (the one after the green arrow) shows a more normal volume of only 2800 shares (both up and down combined). It also showed prices move marginally higher (crude slightly lower). These 2800 shares had about the same impact as the 500,000 from the previous candle!
The third screen capture (above) shows the volume for the first long red candle that sends prices lower. This is the 3rd candle following the original one where the green arrow appears. It shows volume of 4200 notes, including 2700 being sold. Remember that since this is an inverse ETN, when the price of the ETN goes down, the price of oil goes up! Thus, less than 10 minutes after someone shorted oil to the tune of 500,000 shares in this large ETN, prices moved substantially against the position just purchased, and the price of crude oil moved higher! If you shorted oil, that would be a painful lesson.

Thus, even a very large fund buying crude oil in massive volumes can be easily offset by just a few small traders selling smaller volumes at the same time. In the example above, the effect of the 500,000 notes that were selling crude oil were quickly nullified by the few thousand (2700 in this last candle) that were buying crude oil. This must be very frustrating for large funds to know that small investors and traders can have almost as much impact on the market as they can, offsetting all that buying and selling of the big funds with much smaller trades that have just as much impact.

The point of all this is simply to underscore how incredibly difficult it is for one person, a group -- or even a very large fund or investment bank -- to drive the price of crude oil higher. Speculators simply don't have the kind of power to drive prices that is sometimes attributed to them.

Congress should wake up and learn the lesson the market is trying to send them. It's is a very silly argument (suggesting that speculators drive prices higher) once the facts are known! Congress needs to acknowledge that it is -- at least in part -- bad policy that is affecting the supply and demand for crude oil worldwide, and the blame needs to begin where that policy starts -- in Congress' own house -- right at home. Until that changes, the fundamental reasons for high fuel prices will stay the same, and prices will likely remain elevated.

Day Trading ETFs

Over the next few days, I will be writing about day trading ETFs (and ETNs) in my other blog. I will also indicate which ETFs I day trade. There are only a handful with sufficient liquidity to do so. Did you know you can day trade crude oil through ETFs without any leverage?

Ho Hum! Trading Stagnant Markets With the Market Gremlin Looking Over My Shoulder

What to do on a day when, after two hours of trading, the Dow has changed only about 10 points? And what if the other futures are about the same?

This is a rare event, when most of the futures markets are under an umbrella of low volatility and are trading mostly sideways. Sometimes it happens prior to a major news event, when traders are unwilling to commit to any action, so the market trades sideways, with low volume, or in an erratic fashion. This sometimes occurs prior to a major Fed decision or in anticipation of the NFP or a crop report.

However, I usually keep some good trading books near my desk, including all the ones I've listed in the right column of this blog. Phantom of the Pits recommends keeping a good book nearby to read on a day when trading goes poorly. This helps to prevent negative thinking and a poor attitude from becoming entrenched. I use this same tactic on days when the financial markets show relatively stagnant activity. I like to use the time productively, even when the financial markets are difficult to trade.

Rarely do I read for an entire day, however. There is too much going on in the world's financial markets for them to remain stagnant for more than an hour or so. There is the temptation to walk away from my desk and do something else, even if for a few minutes. However, it seems that there is a gremlin that seems to know when I am away from my desk, because inevitably when I am away from my desk, something will happen that will cause the markets to take off, and that little gremlin makes sure that always happens when I am away from my desk.

The market gremlin always knows! Darn his hide!

Tuesday, July 8, 2008

Stocks Rally to Close Higher on Crude Weakness

This chart for today's activity in stocks shows a nice rally after nearly two weeks of sideways to slightly downward trading. Very nice rally over the past two hours!

Note also that on the daily chart (below), the stock indexes have been building what appears to be a possible bottom. A confirmed buy signal for me includes the following:

  • Prices close above the 8-period Exponential Moving Average. In this chart, prices still haven't closed above the EMA, so we will have to wait until tomorrow's close to determine whether this buy signal will be completed. However, this chart is very close. The EMA changes to green (it hasn't yet) when prices cross above it and remain there until the close of the day.
  • The Klinger Volume indicator is higher (green) and above its moving average (yellow)
  • Prices move higher the day after the combination of the above two signals
If prices collapse and move lower tomorrow, this signal will be nullified and the stock market bear will continue, or perhaps a consolidation will ensue. Tomorrow will be a key day to determine if this is the bottom.

Russia Threatens Tactical War!

Just moments ago, Russia issued a military threat against the United States and Eastern Europe if the defensive missile shield is deployed in Eastern Europe. Wow! It wasn't even a veiled threat. They said they would strike with a tactical military response! No hedging, no veiled or implied military strike. That's the first threat I've heard of a possible World War III! It will be interesting to see the impact on financial markets!

Grains Rebound

Where's the (Stock Market) Bull?

With such a huge collapse in the price of crude oil over the past two days, I would have expected a huge rally in the stock market index futures today. The Dow futures instead were down about 100 points during overnight trading. Still, with crude oil dropping more than $8 in two days, I expected a 250-point rally. However, the Dow futures are down instead -- at least for the moment.

It appears that the the financial markets are not comfortable with the idea -- presented this morning in a speech by Fed Chairman Ben Bernanke -- of the Fed being given more and expanded regulatory powers. We're not talking banking any more! I'm not comfortable with the idea either! More onerous government through an agency that has no accountability to Congress? All I see is compromised private property rights coming fast and furious! Do we really want to give more power to a quasi-government agency, composed of private bankers, whose only true skill is one of creating a monetary policy that devalues the currency, creates inflation and monstrous bubbles, and robs the middle class of an honest return on their capital by excessively lowering interest rates? I don't think so!

Where's the bull?

Grain Futures Fall Off the Cliff

Grain futures this morning have fallen precipitously, collapsing with the price of crude oil and with rumors of possible pending ethanol waivers, both in Europe and the United States. Corn has reached limit down within minutes, with both soybeans and wheat also plunging. The commercial hedgers will be bargain-hunting today! Bruce Knorr at says on his morning commentary today that a pull-back in July is not uncommon in a bull market.

Commodity Collapse?

Commodity prices across the board -- including crude oil and grains -- have collapsed overnight, as symbolized by this hourly chart for soybeans (above) and this 2-hour chart for crude oil (below). Is this the beginning of a downtrend in commodities? I don't know. I'm certainly not ready to declare a bear market in commodities. However, this certainly appears to be a significant possible shift in the markets. If commodities begin a downtrend, and especially if the price of crude oil drops by $30-$40 per barrel, then it is likely we will also see a very forceful recovery in stocks, and an economic recovery into the fall. This may be a key pivot point in the financial markets.

Dow Futures Reach New Lows Overnight

The Dow Index futures have reached new lows for 2008 (and the current bear market) overnight. This chart shows the overnight chart for the Dow. It has since recovered nearly to the flat line this morning. It's anyone's guess what the day session will look like later this morning.
I feel sorry for those who have held onto their stocks and indexes over the last six months, because the stock index futures have reached new lows for the year overnight. However, if anyone has continued to hold onto their positions through all the bad news since the beginning of the year and through all the warnings of recession, they are either foolish or have a very long-term perspective that will perhaps permit them to ride out the recession (I'm trying to be kind, here). Profits aren't profits unless you take them! Look at the daily chart of the Dow Index futures below. Does that look (below) like a bottom to you? It's been moving steadily downward since May 20th!
(Interestingly, to be intellectually honest, a lower close inside the purple Bollinger Bands as shown on this chart is a sign of waning downward momentum, so perhaps a bottom is not far distant, at least for now. The Klinger Volume indicator is also signaling a shift in momentum. There are some signs that the stock indexes are trying to form a bottom, so there is some hope. But I sure wouldn't bet on it, especially since markets can often re-accelerate downward later. With earnings season just beginning and P/E ratios very rich based upon a healthier economy from past quarters, I won't be surprised if a few disappointments lead the markets still lower as those rich P/E ratios force the markets lower to compensate. But that just an opinion, not a prediction.)

Sometimes investors are deceived by advisers who claim to have their best interest at heart, telling them to ride out bear markets, saying that since the market has declined so much, therefore we must be close to a bottom. These people don't know how to analyze charts, so they advise their clients to just hold on for the ride. I suppose that misery still loves company.

This idea that markets have declined and now must turn higher is pure fallacy. Just because a security or other financial instrument has declined substantially does not mean that it therefore must now turn higher. Wrong! Have you ever heard of Newton's First Law of Motion in physics, also known as the law of inertia, that states that "objects in motion tend to stay in motion" unless acted upon by an unbalanced force?

This principle is also taught by Chick Goslin in his book "Trading Day By Day", and also applies to the financial markets. Financial trends in motion also tend to stay in motion -- unless some other powerful countervailing force intervenes. Prices that have declined substantially can decline still further. In fact, stocks can go to zero. (Commodities don't. They always eventually find a bottom and retain value. I guess that means I'm biased.) The larger the market, the longer the trend tends to remain in motion. It takes a great deal of energy to change or shift momentum toward the opposing direction.

Wouldn't it be much wiser to exit the market or a stock, wait until the bottom forms a solid base, and buy again after the market begins to head higher at a much lower price, thereby assuring an investor of a greater profit after buying at a lower price later? This is why I always use tight stops, as recommended by Phantom of the Pits in his book, "Phantom's Gift". Who's to say that the stock market that has now declined 20% won't decline an additional 20% -- or more -- before a bottom is formed?

Recall that the NASDAQ is still only about 50% off its former high. NASDAQ investors with a buy-and-hold philosophy are still waiting for the index to recover to its former all-time high -- and they'll continue to wait!

Returning to my previous example of a 40% decline, a Dow investor that holds onto his/her position through the entire 40% decline would have to earn a 66% return off the bottom in order to get back to the same level they reached at the market top. (A 40% decline leaves an investor with 60% of the amount they had at the top. It requires a 66% return -- 40%/60%=66% return -- on the remaining 60% to get back to the quantity that the investor once had at the high. That's a very deep hole to dig oneself out of!) In the case of the NASDAQ that declined by 50% off its high, an investor would have to earn a 100% return just to get back to their former equity value. Another very deep hole!

Better yet, instead of exiting the market and waiting for re-entry, wouldn't it have been better still to have been short the stock market over the past several weeks? Note the fantastic uptrend on the daily chart of the ETF that shorts the S&P 500 index, which has been trending solidly higher since mid/late May. While "buy-and-hold" investors were losing money day by day, swing traders have been profiting from the economic downturn by buying this ETF (see chart below, ticker=SDS).
Meanwhile, swing traders who ride the highs and lows of the markets, moving in and out, buying and selling the waves of activity, are earning a return while investors are sweating bullets and trying to survive sleepless nights. One can learn to trade, or one can endure sleepless nights!

In my IRA (using no leverage) using ETFs, I exited my stock indexes nearly 9 months ago. I went short in January, making a solid return on the sharp decline in the first weeks of 2008. I then went long through part of the Spring months primarily in foreign stock indexes and energy ETFs, once again going short late May 08. I did all this by reading the technical analysis charts. While many investors are wringing their hands, hardly able to sleep nights, hoping that the stock market will bottom out or that the government or Fed will engineer a bail-out that will have some muscle, I have been fortunate to have increased my IRA more than 35% year-to-date.

Buy-and-hold strategies are for people who are incompetent at technical analysis. Again, misery loves company. Everyone should learn how to read the charts and recognize turning points in the markets so they will know when to get out of the market near (note that I did not say at) tops, and get into the markets after they have bottomed and begin to turn upward again.

I have heard an investment idea that is attributed to one of the Rothschilds (sorry, I don't know which one) that they enter the market after the first 20% of a move, and they get out before the last 20% of the move. They don't get greedy by trying to pick tops and bottoms. No one has ever been able to do that consistently. But we can learn to recognize an emerging trend after it starts and take advantage of it. We must likewise also learn to recognize when trend momentum is waning so that we can exit in a timely manner. That is what I strive to achieve.

Monday, July 7, 2008

Stock Market Rout, Treasury and Crude Oil Rise Rapidly

Amazing the difference 5 minutes makes. Look at these charts versus the ones from my last post. Wow! These are the kinds of movements that traders love.

The Connection to Crude and Relationships Between Futures

Meanwhile, and it is no coincidence, the price of crude oil, after briefly trading below $140/barrel today, has begun to rise again. Stocks and crude oil have also traded inversely to each other in recent weeks. This correlation has been so strong that a trader can literally watch crude oil rise on one chart while stocks are declining simultaneously on a parallel chart. As long as the price of crude oil remains at such elevated levels, I find it hard to imagine a scenario in which stock markets can prosper.

Lest anyone make the mistake of assuming that these relationships are permanent, I would warn others against making that assumption. These relationships between futures markets are as fluid and changing as the markets themselves. Still, the striking relationships between these three futures (stocks, treasuries, oil) are hard to miss (see the three charts below). These movements not only occurred inversely to each other, but they also occurred simultaneously.

Fortunately, although tropical storm Bertha has now strengthened into a full Hurricane, its storm path indicates that it will not make landfall in the United States, so there is no risk of impact on the price of crude oil. This, along with the stronger Dollar, are the primary reasons for the falling price of crude oil today. However, with four more months in the hurricane season, what will happen to the price of crude oil -- and thus, stock prices -- if/when a hurricane develops that does threaten oil supplies in the Gulf of Mexico? We should all shudder at the thought!

Crude Oil


Stocks: The Bottom Falls Out

Suddenly, the bottom has fallen out of stock index futures (see here the Dow), and there is a run for the hills (out of stock, into treasuries). The two often move inversely to each other. As traders liquidate stock index futures, they run for cover in treasuries, which are perceived as a place of refuge for cash. As I mentioned previously, the reason is irrelevant.


Soybeans Limit Down Too

Wheat isn't far behind either. A stronger Dollar and better weather (for grains) have pushed prices lower across the board in the commodities markets.

Corn Opens Limit Down

What's Not to Love Trading Treasuries?

I am having excellent success trading the 10-year treasuries today. What's not to love? These movements are as smooth as sine waves, and since the margin requirements are among the smallest of all futures, I can make just as much money by trading more contracts. Treasuries are also among the most liquid of all futures. I could (but didn't) trade 500 contracts without affecting the market at all. Liquidity is as close to infinite as I could ever hope for. Liquidity was wanting last Thursday, and the treasuries showed some unusually erratic behaviors -- for treasuries. Today, however, market behavior is back to normal and the treasuries are providing bountiful profits.

One reason why treasuries tend to move in such smooth waves is that this is perhaps the most liquid futures market in the world. You can't turn an aircraft carrier as fast as you can turn a dinghy, so the treasury futures tend to change direction much more gradually -- like a sine wave -- rather than in erratic, jerky paroxysms of irrational spams.

Oil Down, Stocks Up

The price of crude oil, after reaching a new all-time high late last week, is down about $3/barrel today. This is the primary reason for a stock market rally out of the starting gate today.

Crude Oil -- 1 hr chart
Dow -- Day session open

The Trap of Trying to Trade Fundamentals

The reason why prices change is ultimately irrelevant, since only price really matters. The reason for that price doesn't. Over the weekend, I was reading the book, "The Disciplined Trader" by Mark Douglas. He says that one psychological weakness of most traders -- even floor traders -- is that they tend to look for a reason why that market did what it did, as if that predicts future price action. Does it really matter that corn prices fell because of ports reopening, versus prices that dropped because farm yields rose, versus prices that drop because the price of crude oil went down, versus prices that fell because the Dollar gained strength? Who cares what the reasons are? "Reasons for" are ultimately irrelevant. All that really matters is that the price fell.

Some one else will always have better fundamentals-related information, either because they have more information (ie., an additional source of information that I don't have), or because they have more current (up-to-the-moment) information. Even then, this information doesn't tell them what to do with that information. How they choose to trade that information matters much more.

The fact that I attributed the reason to something suggests that I am falling into that same psychological trap as most other traders. It's not enough to simply observe that prices fell. Like the rest of the market sheep, I feel better knowing why it fell. I deceive myself into thinking that somehow knowing the reasons after-the-fact somehow gives me an edge in future trading. It doesn't.

I check various web sites for fundamentals-related information before the futures markets open for the day session each day, but I have to admit that this information has never provided me with information that gave me an edge -- or profits -- in trading. Technical analysis, on the other hand, does provide me with an edge every day. The chart reveals to me real-time what market sentiment is, and even more importantly, what the market is doing. Knowing why corn prices fell overnight tells me nothing about price activity tomorrow. This is why knowing fundamentals-related information can be a psychological trap -- and usually is for most traders, myself included.

Sunday, July 6, 2008

Corn Collapses Nearly to Limit Down

Soybean and wheat prices have dropped also. The price plunge is being attributed to the reopening of the Mississippi River.

Opec Chief: Oil Prices to Continue Higher

From The Hindu, India's national online newspaper:

Oil prices are likely to rise further largely due to a weak dollar and geopolitics, Chakib Khelil, president of the Organisation of the Petroleum Exporting Countries (OPEC), said on Sunday.

“The price of oil will rise again in the coming weeks. We have to follow the evolution of the dollar, because a one per cent fall in the dollar means four dollars more on the price of oil,” Mr. Khelil said in an interview to Algeria-News.

“I believe that 60 per cent of the rise is due to the fall in the exchange rate of the dollar and to geopolitical problems, and 40 per cent to the intrusion of bioethanol on the market,” he said.
The full article can be found here:

OPEC President Predicts Further Rise in Oil Prices