Saturday, December 3, 2011
The Daily Note - Big News Moves
I usually talk about what to look for on the chart on my youtube forecast for the week but I don't talk in absolutes because it's impossible to predict news, moods, feds, traders. Trading has many probabilities and a surprising amount of possibilities. In fact it has endless possibilities as we have all witnessed on Wednesday. On Black Friday the market looked like death but from history we knew of a probability of a Christmas rally, knew that news was possible about EU situation, but still had no clue about what was coming.
Many have written on the subject of hindsight remorse and and point out, correctly, that it is impossible to forecast and that no one should blame themselves for missing the action on sudden news and moves. None of us can grab it unless we're on top of the information at the moment it happens and act fast. Since most of the news was from Europe and US trading was not open, it was nearly impossible to capitalize on the news and most of the gains were already realized by market open.
So what can you do when those kind of situations happen? You are thinking that surely there is a way you can gain something, even if it's just crumbs from the table. In my opinion, that's when you can best use the time to watch the tape, and increase your trading chances for the following day. On big news days, chances are that people over react. They over buy or over sell and often they over hold. Big news needs to settle and become accepted, once verified. It also needs to be analyzed and given time for the rest of the population to receive it. We often forget, because we are always connected to what it happening in the world, that most people only receive their news once a day, or even once a week.
Spending your time plotting your trades based on probabilities can get you ready for further moves once the digestion is complete.
There are two moves possible after a big news day:
1, The world likes and agrees with the news in which case markets will continue to gain or at least hold to higher levels of the move while digesting.
2, The world rejects, dislikes or needs to further analyze the news, in which case the markets will likely pullback some if not all of the gains and hold somewhere for further direction.
When preparing for these, look for laggards as well as leaders of the move and prepare for both possibilities above.
On Thursday, we had our answer the NDX opened and moved higher, while the DJIA held to the upper levels and for both, we were prepared. Using the philosophy we traded: laggards, AAPL, AMZN, BIDU and CF; holders OIH and GOLD; gainers GOOG, MA, into Friday.
So, next time you see a Big News Move, remember to think possibility and get ready for the action.
Happy Trading, Living and Dancing
The Daily Pick - DJIA Outlook
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Posted by Anni_V