Trading Evolution

Markets are never wrong - opinions often are

S&P 1000 is much smaller than S&P 900

The picture below should put in a perspective the relationship between different S&P indexes such as S&P 500S&P 400S&P 600S&P 900, and S&P 1000. S&P 900 is a combination of S&P 500 and S&P 400 which covers $20.3 trillion as of today when S&P 1000 is a combination of S&P 400 and S&P 600 indexes and has total market capitalization of just $2.2 trillion which is much smaller than $20.3. So here you go welcome to financial world where 900 can be much bigger than a 1000.
S&P 500, S&P 400, S&P 600

Oil is going to rally soon

After the worst first week of trading it is good to remind everybody that the market does not always go down. Stocks are paying close attention to the price of oil recently and if oil starts to recover so will stock prices. Seasonal factors are a strong force in price of any commodity and oil is not an exception. Next week marks the end of negative seasonal factors and the start of positive seasonal tail wind for oil. If oil starts to stabilize and go higher the markets will feel better after rough start of the year.

Worst ever first week of trading

It seems we getting into a pattern of "worst ever"s. First worst trading day, then worst four days and now worst first week. S&P is down 8% in last seven days. What's next? Worst month, quarter, year? Just food for thought. As traders we should be ready and prepared for "worst ever"s. Do not get "stuck" in losing positions. Remember to get out, you can always reenter back later.

Worst-ever four-day start to a year

S&P 500 dropped by 4.9% since Monday. This is the worst start of the year for the markets and all FED had to do is raise rates 0.25%. Just imagine what would happen if they continue raising rates as they are promising now. The market is clearly hinting to the Federal Reserve that it is not a good idea and they usually listen so I would not expect any rate hikes soon.

Buy Low, Sell High

How many times did you hear to be successful trader all you need to do is “Buy Low and Sell High”? I heard it thousands of times. Unfortunately, this phrase misses few important words. Let me give you an example on below chart. When you ask ordinarily person or a new trader where is the low and where is the high? Close to 99.9% will say Point 1 is the low and Point 2 is the high and they will be right except one small key word. Point 1 is past low and Point 2 is past high. Unfortunately, when you trade and invest you do it in a future and not in the past.

Let’s look at the chart below which looks at the same data as above but few weeks forward. It turns out Point 2 was past high but it is at the same time is future low. So next time people say “Buy low, sell high” they mean “Buy at the price that will be future low, sell at the price that will be future high” or “Buy future low, sell future high”