Investing in a Win-Win Market
Reflections on current market action and perspectives on short term price action.
With economic data giving mixed signals could the next big move be no move?
Recent earnings have shown unexpected growth this past quarter, however the US housing market might be signalling a slow down in spending. Mergers and acquisitions are a sign of spending, but what happens when the merger is between dollar value stores in the US? With the US monthly unemployment report out due this Friday, perhaps we are in for ride to nowhere.
Could another peak in equity markets drag you into the market if you aren’t already in?
While recent chatter has many people believing this equity run is either unstoppable or about to crash, the reality is that this is a trading market that is rewarding very disciplined traders. While bullish traders have certainly been able to profit, so have patient and prudent bearish ones. The catch is that profits are much smaller and that most retail traders might be hard pressed to make money after commissions.
After a busy week of economic data and central bank announcements the equity market continued its bullish tone and charged to new highs. Will there be profit taking to give new investors a chance at joining the party or will the market keep you on the edge of your seat like a World Cup game?
Turning our attention to oil, West Texas Intermediate (WTI), we can see that the recent rally had actually begun to build before the recent situation in Iraq came to the forefront of oil traders. In the chart below you can see how the downdrafts within the positive tend have a somewhat cyclical pattern. The length or magnitude of the down moves (highlighted with red arrows) tends to get smaller before a large breakout (highlighted with green arrows) occurs. Since just before the start of the new year the red downdrafts began. The downdrafts were smaller and smaller as time goes on and we now appear to be in an upward phase. The recent news out of Iraq is only increasing the liquidity of oil and making it easier for sellers to sell to a wider audience.
If the last period of sectarian violence in 2006 through 2007 is any indication of the near future of oil prices, speculators may be in for a disappointment. While an upside move to USD$112 and above is reasonable, it would be most likely be short lived if it happened. Just like the rally highlighted by the green arrow at the end of the summer of 2013, the rally can be taken away to start a new cycle. The difference here is that a higher floor for prices has been established. Those who are not committed to being bullish or bearish on oil prices might assume prices to trade between USD$114 and USD$100 in the very near term.
Option writers could be poised to take advantage of the increased liquidity in oil. Although news will focus on “stability” stories, the volatility of oil was 75% of its normal value during 2006 through 2007 as compared to 2004 up to today.
| During 2006-2007 | 2004-Today | |||||
| Equivalent Move (Today’s Prices) | One Day Periods | One Week Periods | Two Week Periods | One Day Periods | One Week Periods | Two Week Periods |
| Maximum | $113.55 | $118.23 | $119.19 | $125.82 | $157.26 | $156.31 |
| Average | $106.77 | $106.76 | $106.76 | $106.84 | $107.13 | $107.46 |
| Minimum | $101.64 | $98.13 | $92.34 | $93.92 | $73.75 | $76.00 |
| Standard Deviation | $1.96 | $4.08 | $5.45 | $2.50 | $5.60 | $7.44 |
Certainly there were other forces at work in the oil market in the above time frames. However, It is important to put market moves in context so that you can set realistic goals for your trading.
Good luck and trade rationally.
After beginning the month of June at all time highs, the equity market continued to march on to even higher ground. Despite the continued wave of market optimism, the market broke its streak of weekly gains. Will new developments like the violence in Iraq dampen the mood? Or will bold mergers and acquisitions put the bull run back on track?
After a shortened trading week with very little volume, has the stage been set for traders to come roaring back to work?
After a long holiday weekend the equity market finds itself at fresh new highs. Will traders look to upcoming economic data, or will complacency set in as vacations will be in focus?
After another touch of all time highs, the equity market took a spill. Things looked like they perked up on Friday. The question remains if the equity markets can match the action of the US treasury markets.
Charts Courtesy of Yahoo Finance
After a week of choppy trading it feels like the summer market doldrums is happening now. S&P 500 futures traded at about half of the usual trading volatility. The market has been more accommodating for those that can pick stocks at the right moments. Make sure that your broker is not making more money from commissions than you are making at trading. Could Monday’s Equity party finally break the market out of its trading range?
The results of the latest poll are in and the most requested topic is Priceline. There are many reasons why Priceline warrants a discussion. Even though it is well below its all time high of about USD$1379, it is still one of the faster growing stocks of the past 5 years. Priceline was the first S&P 500 stock to trade over one thousand dollars per share. With the next earnings report due shortly there is much to talk about.