Friday's 400 point sell has good lessons. Any Dow projection model that we have will immediately lose all "count" or numerical perspective when an upturn or downturn takes place of this magnitude.
Friday's downturn accelerated on two issues, both critical to our study of the market:
1. The unemployment rate was unexpectedly high. This false report often trigers movement but fear took over Friday.
2. The USD sold off. The recent rise "things are better" and the dollar being "built up". The USD fell off the jobless rate, it's worst one month rsie in 22 years, while payrolls fell for a fifth straight month. Oil and raw material are priced in dollars worldwide, and they will rise when the dollar falls.
It's our lack of attention to our falling USD that led the almost $11.00 spike per barrel in oil Friday. Traders that truly want to follow NEWS will watch is said or conjectured about the USD most, as this leads the oil game. Oil is fully priced now by traders on the floor, not OPEC.
Pay attention to Israel, ready to form attack on Iran. This event could be a trigger to more downside. Although defense analysts think its unlikely, with Iran so well fortified.
Let's just think out the last 8 years as we analyze the market. It's very important in your analysis of what will happen, and what IS and HAS happened:
1. Unemployment at all time highs. (Came in Friday at 5.5 %; real unemployment, not false govt data, is closer to 12%)
2. Oil at all times highs, with a dwindling supply and growing demand (Speculators in control of pricing at this point. Conservatives now screaming "let's drill Alaska")
3. Environmentally at frightening conditions both domestically, and internationally. (Did not promote Kyoto Treaty 8 years ago, and consistently has downgraded environmental concerns)
4. Hated or laughed at by much of the world. Perhaps the USA not even seen as the superpower we were.
5. 100's of billions of debt for the Iraqi war, DEBT created to either find WMD (never were there), or later (my personal favorite), to bring "democracy" to a country that does NOT have the word in its vocabulary (our arrogance astounds even my cycnical self)
6. Personal rights of our citizenry taken away in the name of "security" (I take my shoes off in airport security lines; Defense Dept finds 152 billion Friday in false billings and waste in Iraq spending)
7. Afghanistan in shambles
8. The dollar at all time lows (Tax cuts and rebates now pay for a few tanks of Gas)
9. The stock market so flat that profits have eroded, and a real estate market that has been destroyed because of corporate greed, and LACK of Fed oversight. Bubbles Greenpan even promoted "creative financing" during the Emperor's reign.
10. Human rights of prisoners (Cuba and Iraq) a tragedy.
11. Promoting ethanol as an alternative (lobbyist led) when a small child would know this will raise food prices.
12. Incentivizing the purchase of Hummers (farm vehicles) while lowering tax credits for Hybrids. Lobbyists and oil buddies of the Bush empire? Oil has hit all time highs.
My soapbox pitch is to help us understand that we are in dire straits, and the stock market is and will be affected by this disaster.
My soapbox pitch is to also show us that the devastating unemployment report is actually MUCH worse when REAL DATA (not Bush led facts) is extrapolated, and economic analysts that track this see REAL unemployment at closer to 12-13.5%. It IS relevant to count all unemployed, not the government game, as the unemployed EFFECT and AFFECT the economy.
Do we need more experience in the White House (McCain logic), or perhaps is the "experience" just more of the same old crap we've listened to and watched occur? Is it intelligent to say "I will NEVER surrender in Iraq", or "Bomb, bomb, bomb Iran", and do we want this type of thinker leading us? Certainly a great war hero, and I'm sure a good man, is McCain truly someone that can FIX the above issues, and more importantly, UNITE a very confused people?
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As the market moved yesterday here's what was possible:
1. The June 590P moved right with us to a good best buy start as the market moved up, and was available as low as 1.90, selling to 3.30, for another profitable trade.
2. Second buys were made on the June630C, now our hedge position, and we have now moved stop loss to this Friday.
Traders will teach us best today, a few of their comments:
*"Hey Floyd,
It's kind of discouraging that the market can move almost 100 pts. and there not be much change in the value of our options. Is that because of the decrease in time value? What are the chances of us breaking even on those calls?
FEAR fills this trader's commentary. It's so early to even know, why worry?
I'm not writing to you to complain. I am writing because I am studying the manual for a second time and I've been really reading through your testimony...especially the part on page 9 concerning your emotions. You wrote that you "actually had patterns and rituals for failure." What was going on there?
It is obvious that you have a proven system, a simple set of rules that you now follow that allow you to be successful. That being said, I have found that over this short period of time. I have resisted your instructions only to find myself losing...like that would be a surprise.
This occurs when a trader begins thinking he/she understands, and tries to "break rules" to profit.
I could have easily sold my profits last Thursday, as well as not purchase any 650 call positions on Friday (which is what you recommended), and everything would be fine right now. It is one thing to lose a trade because the market just turns on you, even though you followed the system etc. It's quite another to lose because of impulsive or emotional behavior. What are thoughts behind why we self-sabotage. I have a feeling that I am subconsciously choosing to screw things up. How do you stop that?
This takes self analysis. Write a journal to yourself on the trade and why and what happens. Email with me regularly.
Michael
PS - Did you play any puts today? I'm scared to
Here's an example of that fear. Buying the puts would have put $1.00 or more per contract to his bottom line.
This trader began "wanting something".
*"Hi Floyd,
Last week was evidence that I am learning some things. I played the 630 call so many times last week that its funny. I was the kinda person that would hold the darn thing all week and wonder how everyone else had so many trades as I watched my position in pain because I did not have a plan. Simply putting in the buy order then, sell order when buy is filled, then put in buy order again for same or lower then last buy and just wait. It was like fishing in a good hole. Just put the bait on and wait.
Anyway I played the call in and out with over 20% each trade three times on Wednesday. I was too tired to trade on Thursday although I looked at chart at the end of the day. Now I have purchased the 650 call at $1.5 and $1.2 and holding over weekend. It feels really scary with the fear the heads are spinning. I also look at P&F charts, and the ranges and see a real re-test of the April lows. This gives me a little peace until Monday that maybe this is the great fear that signals the real bottom. Never the less I have made so much last week and have won so many times now that getting this wrong would almost feel kinda good. I guess it would not hurt to win either. But I bet we don't have a dead cat bounce on Monday.
I have been around long enough with your service to laugh in an affectionate way when a new subscriber say "Your the Man Floyd" in many different variations. Now I am sure that you are a Master in my opinion."
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*"Floyd, nice play on the OEBRR put on Monday. Made some nice 1.00 per contracts, and made my second buy on the call. Fun to watch the analysts."
_____
*
Hi Floyd,
1. Your original prediction was that the market was going to have an "upswing" reaching 12,800 then onto 13,000, after what happened on Friday where it dropped to 12,214 is it possible that it might reach as low as 12,000 where it will reach the next support level ? If it does reach this level, do you predict that there will be very, very, very, very STRONG support at this 12,000 level ?
This is over analysis. It could do this, and it could do an upswing. We have to first establish BIAS. 0000's are a very "magic" number that hesitates a market.
2. I read awhile ago that you predict the US economy will start to improve in October 2008, is this correct(from memory) or have your thoughts changed since then ? Do you predict that the markets will maintain their bull momentum which started in March until October or do you think it might falter ? As in the point & figure graph there was a double bottom signal last week that you showed me in your charts ?
My commentary was "typically recessions last 12 to 18 months historically. I believe we entered a recession over a year ago (Bush disagrees), and that we will be out of recession in advance of the November election.
I also believe oil will drop or maintain semblances of control at some point. The world's economy runs on oil, and we are now hitting a point that all nations will begin "watching".
When oil lowers, America will go right back to the SUV life and miss the boat again.
Anyone remember Carter, when the speed limit went to 55mph?
Did you know that cars are a small part of the use of oil, so our "obsession" at 4.00 per gallon is quite inappropriate to what the rising cost of oil really costs us.
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