Butterflies Taste with Their Feet

Butterflies taste with their feet.

Banging your head against the wall uses 150 calories an hour.

In the next seven days, 800 Americans will be injured by their jewelry.

Each of the above bits of information are "facts." The usefulness of the fact, however, isn't defined in any way by it "being."

I compare this information of "facts" to the unemployment reports our country puts out. We read about our unemployment, and the interpretation of "improving" or "worsening" based off faulty information as to the number of truly unemployed.

Use this kind of thinking as you analyze and watch the market each day. What is true, and more important, what is RELEVANT. And, what will "trigger" emotion in the eyes of other traders, which we want, making the market volatile. This is what an economic calendar or "event trade" is, when we hear the talking heads later say "the market moved down today because of 'unemployment, bank debt, etc"'.... it is NOT the event that caused the decline, which we know was already built into the market from our Dow projections, but the 'event' triggered or provided catalyst to the movement.

This is one of the most important lessons to learn in trading.

There are many chartists and traders that believe the bull rally will continue, perhaps thru June, and that we could rebuild highs we reached after the first panic. Institutional investors have had little downturn in which to buy up securities, and if it is true they are building up the market based on they "have no choice but to buy" to fill a portfolio, be prepared for the sad returns when their buying at highs surprises us all when lows do come again. I am a chartist, and cynic, that can't fathom why the market hasn't consolidated on various triggers, and thinks that the longer the consolidation is held off by "buying up" the greater fall we'll have.


Yet at the same time, core and top professional traders are right with me, shaking their heads in amazement. Here's Jeff Clark: "The market has sidestepped over multiple warnings signs, bearish technical indicators, and numerous negative divergences. My short-term momentum indicators have been extraordinarily bearish over the past few trading sessions, and we've seen the market dip lower and then snap right back.
We had the opposite situation in late February and early March, when all the signs were pointing toward a market rally, yet stocks continued to press lower. Eventually, though, the weight of the indicators forced a reversal and pushed the market up.
We are frighteningly close to the reverse of that point now."

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Yesterday the market "tried" to consolidate. In early trading the market hit lows of 8593 on the theoretical Dow. Our June 430P hit highs of 7.50 in early trading.
Whipsaw shifts took place for higher risk call traders who day traded for great profits: -OXBFI OEX.X JUN 2009 445.0000 CALL Available as low as 2.80, sold to 4.10 6/8@!Nice profits. And later in the day...highs of 5.10, as call traders again rolled the dice that no downside would hold.

Traders interested in our new signal yesterday to the June 445P were able to buy only above prior day close, with lows at 15.80 in early afternoon trading, but by late afternoon were able to trade the put buy down in price on the swing. A constantly reversing market.

By 3.30 p.m. the market did a complete whipsaw, turned to in the black, and traders could see the bull/bear clash in reality.
The market went from s3 to r3 in a day, in a 200 point swing. Bull rally, or exhaustive gap? The dialogue never ends :)