World Of Wallstreet

Trading Wisdom: Why The Pop Today On No Good News?

Here's something I've learned thru the school of hard knocks. 

Fearful Bearish Sentiment + Absence Of New Bad News => Relief Rally.

So, when things are really scary (as they have been recently with all the Euro news), the market does not need good news to pop. Nothing need be fixed. The mere absence of scary headlines is enough for a significant market pop.

That's why we got the pop today in things like the stock market, commodities, etc. Gold is pretty heavily manipulated so it doesn't perfectly follow this rule, but I think that it too is popping because of the absence of bad news plus a really scared gold community.

MontyHigh, www.worldofwallstreet.us

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Trading Fear

Yesterday's exit was a lucky move, but it was based on my experience watching the markets (especially the precious metals markets) very closely for the last few years. Holding thru the actual news event that was generating the fear rarely seems to work out for gold.

There has been growing fear in Europe for days and it became centered on the question: What happens if the German supreme court rules against ECB bailouts? This is a classic setup: Growing fear centered on a future, fixed-point in time event, especially an event where the question is: Can they kick the can down the road again? The debt ceiling was another such event. The answer, so far, has always been:  Yes, they can.

The way to trade fear seems to be:

• Get in just as the fear is on the horizon.
• Exit at the point of maximum fear just before the make or break it event.
• If there is no "make or break it event" then the absence of new fear-generating news is enough to end a strong, fear-based run. Even if all of the long-term affects are still looming, the absence of new fear-generating news is enough to stop fear-based trading and end a move.

In this case we have to add in the major: "President Speaks On The Economy" interventional. I expect I'll get back in (buy gold and gold mining call options) around 8:30AM on Friday when the interventional suppressing of gold intended to keep the president from looking bad peaks.

MontyHigh, www.worldofwallstreet.us

Palladium And Norilsk Nickel's Transition To Activox Technology

How does this sound to you (click here for the whole story):

 "Norilsk Nickel(NILSY.PK), the largest nickel mine in the world who is also responsible for 45% of the world's palladium and 10% of platinum, is abandoning the traditional pyrometallurgy process andadopting the more efficient Activox Process, hydrometallurgy that extracts base metals from mineral ores by chemical leaching. The change is necessary due to severe pollution anddeteriorating ore grade. 

Knowing the physics in mining, I saw something with hugely significance: While the new technology can extract nickel and copper at near 100% efficiency at low cost, it also means that the chemically stable PGM contents, platinum and palladium, will be extremely difficult to extract. Norilsk will cease to be a major supplier of palladium and platinum."

Sounds like a story that could allow an investor to make a tonne of money over the next couple of years investing in palladium, doesn't it?

I was pretty excited at first, but decided it was too good to be true. At current metal prices, palladium accounts for 36% of Norilsk sales (the same as Nickel). I really doubt that they would switch to a process that cuts their revenue by 36%.

Isn't amazing how so many investing stories turn out to be "too good to be true" after just a few minutes of simple due-diligence? And so the investing addage is confirmed:

DO YOUR OWN DUE DILIGENCE.

Let me know if I'm wrong,

MontyHigh, www.worldofwallstreet.us

Best Of The Web: David Goldman [Inner Workings] Trading Wisdom

I find a lot of wisdom in the latest Inner Workings piece (click here). Here's some tasty quotes:

"It was amusing to see the usual suspects among the Street strategists issue dire warnings about increased tail risk just as markets turned around."

"Like Archilocus’ hedgehog, who knows one big thing, Soros knows how to bet against governments. My old boss, Ken Lewis, also knew one big thing: acquire and fire. Look at where that got him. There’s only one certainly in this world: if you have one really great idea and double down on it, one day you’re going to be carried out on a stretcher."

"The moral of the story, as usual, is don’t play follow-the-leader with the likes of George Soros, and don’t listen to the Street strategists, except perhaps as a contrarian indicator."

MontyHigh, www.worldofwallstreet.us

 

 

Best Of The Web: Thank God I'm A Trader, Not An Analyst

I read this piece about a week ago (brought to my attention via an email  list) and I've been thinking about it since, so I thought I'd put it out there for you, dear reader. Click here for the full post. Perhaps not coincidentally, the piece is by the same guy, Peter L Brandt, whose interview I recently recommended (click here). I'm going to start following this guy's blog. The posts there seem pretty valuable. 

"Thank God I’m a trader, not an analyst!

There is a huge difference between being a trader and being a market analyst.

Analysts are paid by being right. On this basis alone I am not smart enough to be an analyst. Traders are paid by managing risk. These two skill sets are a world apart. In my experience, people who try to be traders by being analysts usually lose their grip at both ends of the rope.

An analyst will be judged negatively by poor market calls. When wrong, a trader closes the trade and moves onto the next opportunity. Hopefully, little harm done! Being wrong is a fundamental assumption for a trader...."

MontyHigh, www.worldofwallstreet.us

 

Trading Wisdom: Variant Perception And The Two Minute Briefing

Best Of The Web: Jesse Summarizes A Ben Davies Speech

I've been thinking about the above post for weeks. It took me an hour to find it. I'm going to start posting, under the category "Trading Wisdom", trading/investing tips that I have heard that have enough value that I think about them weeks, months or years later after whatever initially brought them to my attention. This will allow me (and you dear reader if so inclined) to easily find them and relearn them.

Here's the trading wisdom:

"The theory of variant perception is best explained when I recount Steinhardt's own words. He said:

'A summer intern reminded me years later of the advice I had given him on his first day at work. I told him that ideally he should be able to tell me, in two minutes, four things:
1. The idea.

2. The consensus view.

3. His variant perception (a well-rounded view that is meaningfully different from consensus view).

4. A trigger event.'"

For example here's my 2 minute briefing on my 2015 Dec Crude Oil futures long position:

1. Idea: Go long Dec 2015 crude oil futures.
2. Consensus View: Dec 2015 crude oil futures prices are at nearly the same price as Jan 2011 crude oil prices. No significant inflation is coming and Peak Oil might as well not exist.
3. Variant Perception: Peak Oil is either here or coming soon and it will, over the medium long term, drive crude oil prices higher.  In addition, significant inflation seems pretty likely over the medium to long term given the ongoing currency devaluation competition occuring globally as exemplified by the Federal Reserve's QE2. This will also drive crude oil prices higher over the medium-long term. The Saudis have been holding crude oil in a trading range to allow the world economy to get back on its feet. They really didn't like crude oil falling to $30/bbl the way it did in early 2009 during the crash of 2008. As a result of this trading range, the crude oil price rise has been lagging that of other commodities.
4. Trigger Event: The recent breakout of crude oil from its trading range signifies that some has changed. It seems likely that, at a minimum, the Saudis have decided that enough is enough and are moving the crude oil trading range up to keep up with rising commodity prices. Possibly the advacing global economy has cut enough into spare crude oil capacity that a demand drive price rise is taking off.

MontyHigh, www.worldofwallstreet.us