Morning Market Thoughts

by DAN Good morning. One of the things I pay attention to is headlines. At the end of the day, it’s interesting to see what financial publications think of the day’s action. While I am in the market all day, there might be something I miss. I rarely have the TV on during the day (and less and less in the evening — I guess my Dad was prescient when he used to call it the “idiot box”). Because I’m “dark” during the day, I might miss some valuable insight shared by someone else. We shouldn’t trade in a vacuum. No matter how smart any one person believes he/she is, the intellect pales in comparison to the Crowd. So you’ve gotta be open to the views of others…and to the data they share.

But for various reasons, I just don’t like to do it during the day. With very few exceptions, critical, time sensitive information is rarely…and I mean RARELY…shared during the trading day. When you hear someone on CNBC talk about a particular stock that is moving for whatever reason, the move is already underway. You’ve missed it (or most of it). And do you really want to become a day trader because of something that’s said on TV? Again, the meat of the move has already been digested by the market. You’re left with the scraps, where the reward is small and the risk is big.

But I do look at headlines and “big picture” articles. One that stood out last night concerned the 50-day moving average. One reason to be bullish is because the S&P and the Dow-30 held above their 50-day moving averages. Well, they did. But if that’s a reason to be bullish, then shouldn’t we have been bearish on August 10th and again on August 16th? Because on those days, the S&P closed decisively below that key, intermediate term trend indicator…and on pretty good volume, too! And since the selloff on August 10th, the 50-day moving average has nearly flatlined — up less than .02%. (that’s not 2%. It’s 2/10ths of one percent).

I think it’s important to recognize the trend and to avoid at all costs the temptation to predict the future. The trend is higher. I went into detail on this in last night’s Strategy Session. Feelings are great in romantic relationships and picking up very hot objects. But just feeling like the market is going to go lower and break a multi-month trend isn’t going to make you money. These key indexes are indeed above their 50-day moving averages. But sadly, the Midcaps (MDY) and small caps (IWM) are not. Nor is the financial sector ($DJUSBK, $XLF). Nor are the consumer discretionary (XLY) or the consumer staples (XLP). (The XLP and XLY are knocking at the door…but that’s after some key breakdowns).

My point is that there are arguments for higher prices and for lower prices based on the technical picture. Don’t be sucked into someone’s argument just because it agrees with what you hope will happen. And don’t ignore someone’s argument because you don’t like that person, or because that person is notorious for being a great trading signal — to do the opposite of what he suggests. Instead, consider all arguments and observations. Then, apply everything to what you have learned; to your experience.

As you gain experience you’ll take a lot of things into account, even though it may be subconscious. And then you’ll arrive at your own view. But this is where the work starts. It’s not over. Once you’ve made a decision, always be open to the fact that you’re wrong. There’s nothing wrong with being wrong. That’s true in trading, and in life. But have you ever known someone who refused to ever admit that they were wrong? It’s exasperating. Don’t be that guy. If you’re wrong, then admit it. Embrace the horror of your own fallibility.

When you realize you’re wrong, do the right thing…and change your mind. It works in trading; and it works in life.

–DAN

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