Don’t Confuse Headlines with Reality
Published on December 21, 2010
Published on December 21, 2010
Nothing much is going on in the markets. Though day traders are finding it hard to find trade-able opportunities the way it was before QE2 days, but I still think there are opportunities but with a difference. With the proliferation of HFTs and also “no way for Bears” surety from Uncle Ben, the format for finding opportunities has changed. As opposed to finding patterns, one now has to deal with “psychology” as well as “anticipation” in addition to having a robust trading system.
Earlier you could choose patterns (in fact various brokerage softwares can help you find/scan those patterns) and then as a day trader you build a trading system around it and trade, mostly intraday. Though it was stressful but it could still result in nice gains. These days, it appears to me that majority of the trading is being accomplished via programs/High speed aka HFTs. So if you still want to day trade, then in addition to continuous monitoring you also need to add “psychology” and “anticipation” into your trading system. For instance, Uncle Ben won’t let you go down much (though there is nothing 100% sure in trading business) so you just buy the dips. Similarly, before POMO (bond auction) starts you could buy TBT calls (or other instrument for rising yields) and then sell after POMO closure. Often I have also noticed market weakness prior to POMO which reverses to neutral ground soon after completion of auctions. Will it make money all the time, not necessarily but more often that not I have traded this rather successfully. Don’t take this just on the face of it, pls add these as additional information into your existing powerful trading toolbox.
I often find trades which might be highly speculative in nature. Unless surety increases (and unless there is plenty of time for members to act) I usually avoid sharing as it can be hard to define a clear entry/exit. Albeit, at times there are nice opportunities too like PCLN, TBT, DANG, YOKU, SGG, BAL that I mentioned on Invescafe. Many a times these days, swing is nothing but a gut feeling due to Uncle Ben’s presence in the market. You just buy the dips in quality names. There are plenty of swing trading opportunities in especially in weeklies e.g. NFLX, PCLN, AMZN, GOOG to name a few. All is Well until it isn’t!
There is an interesting article from John Hussman that I shall encourage you to read. Not that I am all out bearish, but I personally don’t like overvalued, over bullish, rising yield environment as it can mischievous. Uncle Ben announced quantum of QE2, $600 billions on Nov 3 with intentions to lower long term rates; since then interest rates as measured by treasury yields have been up up and away. Here are the details from the US treasury website– (rates vs Nov 3)- 30 years up by 35bps; 20 years up by 50bps; 10years up by 69bps, 7 years up by 87bps, 5years by 88bps; 3years up by 52bps, 2years up by 28bps, and 1year is up by 8bps. One may argue that this is “Buy in anticipation and sell of news” type phenomenon. Well then Uncle Ben annoucned QE2 on Aug 27th and the scenarios aren’t much different since then either. To know more about Fed’s performance, read this interesting article by Caroline of Bloomberg.
Neither I am a big fan of hoarding commodity in anticipation of hyperinflation nor I believe in conspiracy theory. But I like to be aware of history. Here is an interesting read from Barrons by Victor Sperandeo that explains some data abaout hyperinflation and the crux is that it is not an “unthinkable” scenario for the mighty USA.
This is the time when you’ll hear tons of pitches for “Best 10 stocks for the 2011”, be careful in buying any such reports. I personally stopped paying for such reports long time back. This is your money, trade it hard and trade it for more. Don’t confuse headlines with reality and the reality is overvalued, overbullish, complacency and rising yield. The reality is that money is made by buying “Value” and it’s hard to find value currently.
Trade carefully, trade profitably, OPКартини
It is interesteing that you should say this. I always stress the importance of doing your OWN research and not relying on headlines and press releases. Any trader who has had any form of success will know that nothing trumps primary research and sticking to your conviction once the basic facts remain unchanged.