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The Intelligent Trader's - Long and Short of It
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From: Robert A. Christy Editor/Publisher, ‘The Intelligent Trader’ http://www.intelligent-trader.com http://www.christyinvestments.com
Date: November 8, 2008
1. Offense or Defense?
The numbers continue to rock back and forth and in all honesty, I am truly tired of it. We are currently on OFFENSE with only the S&P 500 showing current weakness.
BP NYSE Xs @ 42 BP OTC Xs @ 30 BP SP500 Os @ 44
2. The Stock Market
Last week, I had the opportunity to return to my alma mater, Grove City College, and interact with the students. While there, I sat in on an intro Economics class and it brought back a flood of memories.
One of them had something to do with self-fulfilling prophecies. This is the second thing that you learn after the law supply and demand.
By definition, the self-fulfilling prophecy is a statement that alters actions and therefore comes true. For example, a person stating “today is going to be a lousy day” might alter his actions so that such a prediction is fulfilled or becomes reality. This may be a conscious or unconscious gesture. The self-fulfilling prophecy actually predates its name. One of the earliest examples comes from Greek myths surrounding Oedipus. If you remember your ancient history, an oracle foretold that Oedipus would kill his father and marry his mother. By trying to avoid the prophecy, Oedipus’ actions led to his killing his father and making the prophecy come true. Robert Merton, a 20th century sociologist, actually coined the term of self-fulfilling prophecy in his 1949 book, Social Theory and Social Structure. He postulated that prophecy or prediction by nature is false but is made true by a person’s actions. While the modern self-fulfilling prophecy echoes the past, the logic presumes the term translates to attitude about events to come. While our attitudes cannot necessarily influence the larger things, such as a hurricane or tornado, our attitudes can influence smaller things, like the way we relate to other people and their responses to us. Going just a step further, the way we interpret things like "good" and "bad" tend to be weighted by our expectations. When consumers are optimistic, they feel good and spend money. Businesses make more good available for sale, which means more workers, etc. The other side is that when consumers feel lousy, they reign in their spending. This makes businesses scale down and layoff workers.
This week, we got some numbers many economists would just as soon forget. The ISM data came in at a paltry 38.9 – which is the worst we’ve seen this number in 26 years.
The jobless rate came in at a 14 year high of 6.5%. I talked about the auto industry the other day, but they are pretty much toast.
Is this the bottom? Who knows? I am working on several scenarios from this is just lousy to Great Depression II. The auto bailout will happen because of Congress’ love affair with the auto worker’s union. We’ll be told that they are too big too fail, but the reality is that these are just too many voters to let slip through the crack.
The net impact of all of this is that we are probably going to get sandwiched into a trading range while we work off the excesses of past behavior.
Too much emphasis is being placed on volatility (VIX). This looks like a short term phenomenon that is not likely to last. The large intra-day swings are just the markets way of shaking itself free from all of the garbage that has managed to grab hold.
As the excesses wane, we should revert back to normal where the daily price action is pretty boring.
3. The Dollar
The dollar has been trading on a weaker note since the election. This week, trading will be light because of the short trading week (bond market is closed tomorrow) and it will likely be January before we see any strength return to the greenback.
From a trading standpoint, we pick and choose our spots and work to improve our trading. The market will be selective and we’ll have to do the same.
4. Operational Note
Due to some recent law changes in the way email is processed and delivered, I am moving my email capabilities to a new set of servers. As such, you are set to receive an email from me in the next few days. Please take a minute to confirm your interest in the “Long and Short of It”. This is necessary for you to continue receiving this free e-letter.
That’s about it for now. Let me here from you if you have any questions.
Robert Christy
P.S. In the next few weeks, I am rolling out a new stock trading coaching program that will expand what I currently offering though The Intelligent Trader. This program will in the form of a mentorship and is geared to investors looking to become more proficient in trading and technical analysis. Look for it soon!
P.S.S. Please fee free to forward this to your peers, friends and associates you think would benefit from its contents. They will thank you for it - and so will I!
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Robert Christy is a professional stock/currency trader, money manager, author and speaker. Mr. Christy is the President CEO of Christy Investment Group, Ltd., a fee-only registered investment advisory firm. He is also the Managing Partner and Portfolio Manager of Crabapple Capital Group, LLC and the editor/publisher of The Intelligent Trader, a subscription based long/short trading service. At the time of publication, Mr. Christy may from time to time write about stocks in which he, Christy Investment Group Ltd, Crabapple Capital Group, LLC or The Intelligent Trader has a position. In such cases, appropriate disclosure is made. Under no circumstances does the information in this column represent a specific recommendation to buy or sell stocks. Mr. Christy appreciates your feedback and invites you to send it to rac@intelligent-trader.com .
Robert Christy The Intelligent Trader c/o The Christy Investment Group P.O. Box 625 Alpharetta, GA 30009-0625
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© Copyright 2008 Robert A. Christy
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