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from the archives..
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Friday, January 21, 2005
Jeff Cooper's 'The Trading Reports'
Market Commentary: Will of the Bulls Gets Sheared
The light through the dark
Who, against all odds, continues to teach me
The meaning of sheer will.
In the markets, as in life, you have to know when to play and when to walk away. You cannot confuse your position with your best interests.
In many walks of life, you can, with dedication and commitment, will your way to success. However, in the psychological arena that we call the financial markets, that is the kiss of death. You have to learn when to walk away and save your powder to play another day.
For example, a surgeon will do anything he can to save an operation gone bad. He will do everything in his power to will the patient back to life. This is a terrific trait. But, in the marketplace, you cannot will a bad trade back to health. You have to pull the plug and move on. For traders, there is no nursing a sick situation back to health. Sheer will cannot cut the mustard.
In the markets, only the humble survive, and the lesson of humility is taught to traders every day no matter what financial heights a trader has scaled and no matter how much money he or she has made -- you are always vulnerable to the market beast.
Cut Your Losses
Losses are the market's way of telling you that your sense of sheer will and humility are out of balance.
The market is a living, breathing entity that has its own sense of balance. It has its own sense of psychological supply and demand. Trends and sentiment can and do turn on a dime -- most traders cannot.
In the market, as in life, actions speak louder than words. It is not important to understand the reasons behind the current market decline (which is the first time in more than 20 years that the first three weeks in January have been down) as price action is the final arbiter.
There is an old story that the legendary comic Richard Pryor was caught in flag/ante delicto when his wife came home early from a trip. In his defense, Pryor exclaimed, "Are you gonna believe me or your lying eyes?"
So, how does this apply to the market today? Well, this is the Age of Instant Gratification, the Now Generation with its "Game Boys." The Program Boyz and the Hedgies get the bit in their mouths and push the market one way and pull it the other way. Just when a trend becomes recognizable and the crowd leans into it, the market usually, not always, goes the other way -at least in the short term. In other words, despite all the statistical talk of the decennial '05 year being an up year and bullish Januarys, the market, like a woman, has the prerogative to be mysterious and fickle. The market has its own agenda. Even when you get a hint of its agenda, do not expect the obvious and do not expect the path to be a straight line.
The market likes to jerk us around. Although it is easy for the mind to go from A to Z in a flash and see how things will play out, the path is never without obstruction and is fraught with doubt and temptation, making one believe that the prevailing direction is an illusion. All that we can do is believe what we see and protect ourselves.
Animal Farm
The bottom line is, as my father used to say, is that the market does not move, it is moved. The Program Boyz and the Derivative Derring Doers are the foxes in charge of the equity hen house. The programs drive the ship: They are the wind in the equity sails. And, there is just no point in fighting the currents. There is no point in fighting the tape. It is better to be aware that we are playing with foxes and wolves and be chicken rather than end up plucked. The majority of stocks are getting their feathers ruffled, some will end up with no feathers. Heads-up. If you are in doubt, just get out. There is no point in trying to pick a bottom based on value or any other matrix of fundamental notions. The numbers do lie. They are illusions created by illusionists to escape illusion. |
