A slightly different Charts of Interest this week as I felt that the recent events in markets deserved a little bit of commentary. All to often sudden moves in the market catch traders both tactically unaware and emotionally unprepared. There has been a single dominant theme in US markets since the first quarter of this year and that has been that index prices have been going sideways. This combined with an ever increasing number of stocks making new highs should have forewarned everyone that their was a high probability of a break to the downside and because of the length of congestion this break to the downside would be sharp.
You can ascribe the falls on Thursday and Friday nights to any narrative you wish. The current internet favourite seems to be the rout in commodity prices and the markets in China. The collapse in commodities has been going on for ages and China has been in the obvious grip of a speculative bubble. The point that does always surprise me is that people are surprised that booms end with busts – it is an intriguing point that highlights both the naivety and inexperience of most market commentators. the movement in the markets raises the obvious point of what do you do? The answer is simple, you do what your system says and you trade what you see not what you think you see. Inevitably, there will be commentators who will trumpet I told you so but the point is a little bit of investigation is that most of these have been calling market crash every years since Methuselah played full back for the Mount Sinai under 11’s. In other words they are bullshit artists and best ignored.
The truth is nobody knew it would happen and nobody knows what will happen from here – the markets could reverse next week and everyone who went short on Friday such as me will look like peanuts. The trick is to have no opinion and therefore there is no need to defend your ego against being wrong. You simply go where the system says to go. The best summation of this philosophy can be found below.