Prague Twin

Wednesday, July 26, 2006

Markets and Numbers

One of the reasons I was AWOL for a few days is that I have had my head in the numbers.

Today was particulary interesting for Wall Street as it closed just down about a point on the day to 11,102 and was confined to a tight 100 point range. 30 day chart you can see that 11,200 provided strong resistance, and now looks to be the cap. This last day looks like a bull run comming to a complete stop. All this upward momentum hitting this important resistance level so it is literally compacted.

If it can break, great for the bulls. However, a more likely scenario is that 11,200 is the top. To make it very simple, if you look at the chart from the link above, you can actually draw a strait line connecting 11,700 (the peak in mid-May) to 11,300 (a smaller peak in early July), to yesterday's 11,200. This represents strong resistance, and today's failure to break that resistance coupled with the extreme volatilty and accelerated bull run over the last two weeks tells me that the bears will be out soon. I said a couple of weeks ago that we would see 10,700 in about a month. Even though we were there in 4 days, that was event related. Now this thing should settle down to 10,700 or 10,600 over the next couple of weeks. With this extreme volatility there is a danger of dropping right through that 10,650 bottom. Time will tell.

The dollar exceeded everyone's expectations this week. Many were shorting the dollar expecting poor housing and consumer confidence numbers, but we were wrong. I got out early relatively unscathed. If anyone remembers, I had talked about a 1.2650 to 1.2900 range for the EUR/USD. I put in the caveat that it could correct down to 1.2500 or lower. Well it did that once, and then headed back up and the thinking was that you could knock the dollar and run this back up from 1.2650 all the way to say 1.28. They ran it up to 1.2690 just before the data was released and then the dollar took back 1% in 2 hours down to 1.25, again. So now the traders were looking for that to continue, and looking for a trade, I went with the current trend and shorted the Euro.

Then suddenly, when I was down on the trade, I came to my senses and realized that this was the bottom. Then I read a long term analysis that agreed with exactly that and asked, is it finally time for the Euro bull run? Well, to me, it most certainly was. I had gotten so buried in the small numbers I forgot about the big ones for a moment.

If $1.25 was the bottom and we had already hit it, there was little to gain by going short now. All the day traders were still going short, it looks like the big boys came in and ate them for lunch. I almost got eaten up with them.

Instead I flipped the trade. I took about $100 loss and decided to go long (buy) on the Euro. While the boys down at the daily desk in New York were buried in their charts, I took a step back and believed in my larger view. It took me a damn long time to construct it, so I better use it.

I bought at $1.25,85 and sold at $1.27,05. I bought more than one Euro, but less than a million. I had the extra thrill of knowing that the boys had lost. God that feels good.

After a five year obsession and nearly two years of preparation, I went to live trading last week. This was my first really, really good trade.

To soon to tell if this will actually work out for me, but if so..... freedom.

10 Comments:

  • I know virtually nothing about that kind of trading...yet. I suppose I'll probably learn as an aspect of earning my business degree, however.

    Anyway, good luck!

    By Blogger Stephanie, at 6:23 AM  

  • numbers....ouch.....head hurts. I suck at that stuff

    By Blogger GraemeAnfinson, at 8:45 AM  

  • glad someone does the numbers and explains them to me..thanks dude.

    On the clocks i have over at my site, they are updated daily from federal websites..Its called zfacts

    By Blogger dusty, at 1:26 PM  

  • I'm not sure if I should say thanks or sorry.

    Really, these are like bookmarks. I like to be on record so I can go back and see if my assumptions were correct.

    Dusty,

    Yea, I guess that is the point about those clocks. They reset, so it is kind of not really, um, well, honest. You with me?

    By Blogger Praguetwin, at 3:28 PM  

  • I might be conversant with economic theory, but applying that to the market is another kettle of fish.
    I guess it is a matter of being engaged, because the rest should be logic and both require some strategy.
    Keep teaching.

    By Blogger Cartledge, at 5:14 PM  

  • I love this economic posts you do, pt - like many of the other commenters here, I know nothing about the markets, but I am really trying to learn a bit. Congrats on going to live trading - I hope this works for you!

    By Blogger reality-based educator, at 5:24 PM  

  • Let's talk more about some numbers. Today, Exxon Mobile announce net icome in thelast quarter reported of 10.3 billion dollars. This is the 2nd highestamount of earnings ever reported by a publically traded company. Exxon Mobile reported net icome in the amount of 10.7 billion dollars for the 4th quarter last year.

    10.7 dollar bills laid end to end would cirle the earth 2 the equator 40.69 times. If my math is right that would be 1,013,244+ miles.

    Alas, the quarterly net income just reported by Exxon Mobile, if reduced to dolllar bills laid end to end, would only circle the earth @ the equator 39.169 times,a mere 975,688+ miles. This is a reduction of 37,875+ mile of dollar bills, or 21+ one trips from Denver to NYC.

    This just in: It is possible to buy gas in the nearest town to where I live in Colorado for $2.89.9 a gallon, although most gas (85 octane)is $2.95.9 per gallon.

    Given the fact that nearly all goods that I buy, milk, bread, beer, or lettuce for example, are shipped to some degree by truck, not to mention that their manufacturing processes also rely on the consumption of fuel, I am paying more than just @ the pump.

    Of course in my business, I cannot raise my fees on existing or prospective contracts.

    Does anyone else besides me think that someone is robbing us blind?

    By Anonymous Tony Sokolow, at 8:51 PM  

  • Absolutely, they are robbing us blind. Did you know that on each barrel of oil, a twenty dollar fear premium is paid? This means that on top of everything else, these bastards make an extra $20 on every barrel just because we are afraid.

    I guess JFK was right when he said the only thing we have to fear is fear itself, or something like that.

    When we talk about 5% GDP growth for Q1 and Q2, a good portion of that is in energy and material stocks. Most of that is because of the spike in price of the raw materials: oil, copper, minerals. Copper's record highs this year are almost more alarming in their spike than oil. But I digress.

    Essentially, Bush claims economic success because of the fact that we have had 11 quarters of extremely good growth, with low core inflation. Core inflation is of course inflation disregarding energy and transportation. We know that energy is going up, and yet the corportate world has been able to absorb most of that cost. I mean, has the price of milk gone up anywhere near what the price of gas has gone up?

    Meanwhile, a loose money policy has driven up the price of real estate and created tremendous equity. This equity has largely been spent, and the first round of refinancing of all the creative mortages comes up this year. The average increase will be about 25%. How do you think people are going to absorb that? Many won't and will have to sell and it has already become officially a buyers market. Oh, ouch, it is going to hurt.

    So just becasue Exxon and others make a killing, and the rest of the corporate world does well, in the end our overpayment for energy and materials is what is fueling this 5% growth.

    We are supposed to be happy with that?

    And don't forget the debt. Man, I am really not liking the way this is looking.

    Ironically, as instability increases and global growth slows, the dollar with strengthen becasue people repatriate their money out of, you guessed it, fear.

    By Blogger Praguetwin, at 9:41 PM  

  • "Does anyone else besides me think that someone is robbing us blind?"

    Oh, I definitely feel robbed. And not just because I'm paying 3.09, instead of 2.89. But, I'm told that the place I buy my gas doesn't do any kind of business with Mobile. I'm also told that the place that I buy my gas has junk in the gas, by Mobile customers. I'm told that my fuel filters wouldn't have clogged up so fast had I bought my gas at Mobile stations. But, then again, I was also told that all the filters had been changed before I bought the minivan, and when I told the guy at AutoZone that he laughed, though not in a mean way.

    So, to say I'm out of my element here is an understatement, but, yeah, I'm feeling rather robbed.
    ;-)

    By Blogger Stephanie, at 1:12 AM  

  • PT,

    Considering your number sense, which very well may transfer to business sense, if you wouldn't mind checking out my most recent post and leaving your oppinion on the matter, that'd be much appreciated. Thanks in advance.

    By Blogger Stephanie, at 6:57 AM  

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