TradingMarkets.com
How To Trade News...Plus, What The New VIX Means For You
Monday September 29, 10:23 am ET
By Larry Connors
First I Was "A LOSER!" But Now I'm "A WINNER!"
Here's the scenario: It's 10:36 AM on a very hot September Sunday morning in Southern California and I'm marching my way to the pitching mound to deal with a melt-down. I have three 11 and 12-year old fast-pitch softball players who are in uncontrollable tears and another three about ready to join them. It's opening day of the softball season, we're playing the team managed by the city All-Star coach, and in the first two innings, his team has picked us dry. We've made five errors, are losing 4-0, and the bases are loaded. Parents are screaming and I'm about ready to play Dr. Phil (and I don't even like that guy!).
As I walk into the pitcher's circle, I'm listening to the girls blurting out "the umpire is a crook," "his brother is best friends with one of the coaches of the other team," "his brother is one of the coaches of the other team," "he's looking for a job at the company from one of the coaches of the other team" and on and on and on. And I let this go on for about five more seconds and then do what any 44-year old would do in this situation: I sternly tell them (actually I screamed it but I'm not allowed to scream, so I "sternly" stated) "ENOUGH!" This at least stops them in their tracks for a second and allows me to tell them to "Forget about it. It's over. I don't care. Get the next two outs and then we'll come to bat. JUST STAY FOCUSED ON THE NEXT TWO OUTS. NOTHING ELSE! AGREED???"
Amazingly, this works, because we strike out the next two batters and shut the other team down for the rest of the game. And, in the last inning, we begin our comeback. First batter singles, I have her steal second, she reaches third on a pass ball and she scores when the next batter grounds the ball to the right side. 4-2. The next hitter walks, I have her attempt to steal second, where she is gunned down. Two outs. Our next batter singles and then the girl after her drives a ball into the outfield (on a 3-2 count with two outs!) and we have runners at first and third. And now the place is rocking. Other games have ended and the parents, players and coaches from these other games are all watching our game. It's utter mayhem. Our lead-off hitter comes to the plate and after fouling off the first pitch, she drives a line shot over the left fielder's head and the ball bounces off the fence. One more run in (4-3) and our runner on first (the tying run) is tearing around the base path. And then I do something that will probably make me the center of attention for the rest of the season. As she comes into third, I wave my hands and send her home. I'm not even thinking about anything else -- I'm just sending her home. And son-of-a gun, the left fielder makes a perfect relay to the short-stop who guns a perfect throw to the catcher and she's nailed at home plate. Game over. We lose 4-3.
And for the next hour, I can't take three steps without some parent, coach or a combination of the two stopping me to discuss why I did what I did. All I want to do is go home and catch the end of the Patriots-Jets game, but I'm accosted over and over again. Many parents and coaches agreed with my decision, but it mattered little because we lost the game. And even though half the teams lose each game, each week, when you're the coach of one of those losing teams in this league, you are "A LOSER." And on Sunday, Sept 14. I was "A LOSER."
Thank goodness, though, in this case being "A LOSER" only lasted two days. We had a game Tuesday night. When I arrived, the opposing team's manager looked at me with a sh*t- eating grin on his face and said "I heard you had a tough game on Sunday, huh Larry?" (and he's considered one of the nicer guys in the League). But, two hours later the fortunes had reversed. The girls played the way they were supposed to play, and the game was stopped by the "Mercy Rule." (For those of you who don't know what it is, the mercy rule states that when one team is beating another by a substantial number of runs at a certain point in the game, the losing team is granted "mercy" and the game is stopped. When I was growing up it was known as the "Slaughter Rule," but that's a politically incorrect phrase today so they changed it to the "Mercy Rule.")
So, as of this writing, I'm "A WINNER"! Everyone loved me Tuesday night. Even the parents who told me on Sunday how they thought I was "too aggressive" on the base-paths on Sunday, changed their minds, and now told me "it's great to see a coach who is aggressive on the base-paths." Yup, I'm "A WINNER"! And I will remain "A WINNER" at least until Sunday when we have the next game. As you can see, this is going to be a fun season.
Predicting Tomorrow's News Today
You've heard me say this before: stocks often talk. And when they talk, it pays to listen. Here are two examples of stocks talking before they had large moves on Friday.
Here's a chart of Research In Motion (NasdaqNM:RIMM - News):
Look at the trend on this stock. It's basically a straight move up over the past six weeks. Why did it rise nearly 50% while the stock market has risen only slightly during that period of time? Well, the story came out on Thursday. "After markets closed on Thursday, RIMM raised its second-half outlook, following stronger second-quarter results that were in-line with earlier forecasts. RIMM upped its revenue outlook for the third quarter to between $140 million and $150 million from an earlier estimate of $115 million to $125 million. It also said its third-quarter earnings per share, excluding litigation charges, would be between 14 cents and 20 cents, up from earlier estimates of between a loss of 2 cents and a profit of 3 cents" was the news story. And the killer is the next sentence: "Analysts said they were impressed by RIMM's performance." Nice. The stock has risen nearly 50% in six weeks, and they are now "impressed" with the results. You don't need an analyst to tell you this. The chart told the story! The stock was making new highs "before" the news. It was talking. It was telling a story. Those who listened to the stock likely profited nicely. Those who didn't and shorted the stock because they thought it was "too high" or "fully valued," lost.
Kevin Haggerty, who ran Fidelity Capital Markets trading desk for seven years and knows a thing or two about trading, (Kevin knows a thing or two about everything...he sent me an email on Monday telling me what the mechanics should look like for my pitcher) uses the phrase "price precedes news." And he's right (about the trading, not the pitching). Price does precede news. Most surprises happen in the direction of the trend. You could see this this past week in RIMM, and you could also see it this week in Eastman Kodak (NYSE:EK - News).
Look at the five-month chart of EK:
The stock market has been on a solid rise and this stock has done nothing. There was no surprise when they announced this week. The stock has been sick for the past six months. The stock's sickness was an indication that the company may also be sick. It was!
Again, two things to remember from this week:
1. Surprises happen in the direction of the trend, and
2. Price precedes news.
This is something to keep in your mind for years to come as you make your trading and investment decisions.
The New VIX
Many of you have sent me e-mails asking about the new VIX. For those of you who are not aware, the CBOE has changed the way they calculate the VIX. Also, they will begin trading futures and options on the VIX later this year. This is very exciting because, in my opinion, volatility is easier to predict direction in than price.
We've run the tests on our market timing indicators (found in my book "Trading Connors VIX Reversals" located at TradersGalleria.com) and the new VIX calculation is pretty much of a non-event. Even though the readings are a bit tighter, they don't change our test results much. This means you should continue to focus on the fact that volatility reverts to its mean, and trade it accordingly.
If you want more information on the new VIX, you can find it at . There's also a white paper there with further details.
If you need more help on this, please feel free to e-mail me at larryconnors@tradingmarkets.com.
Coming To TradingMarkets
We have two top trading professionals joining the site next week. Tim Ord, who is a consistently top-ranked market timer and a veteran professional trader, will be writing for us twice a week. Also joining us will be Rick Burgess, a former pit trader on the CME and now a successful proprietary S&P and Nasdaq trader. I suspect you'll learn a great deal from both gentlemen. Look for their columns beginning mid-week.
Have a great week trading (and it's nice being "A WINNER," at least until the next game)!
Larry Connors |
