TRADING RULES & TRADER’S TALK

My trading rules:  I have a couple of simple ones that rarely let me down. 

1. The ‘Goldman’ Rule:  If Goldman Sachs speaks, I listen.  They are not always right but the odds are good that they are.  They often move the market just by announcing something.  If they feel positive on financials, everyone is piling into financials.  To me, Goldman serves as a backstop.  I feel better going into a stock or a sector knowing they have my back, meaning they are in there with me and they want the trade to work.  Unlike me, they have the power to help things along…

2. The ‘3 Traders Rule’: Regardless of what I am working on during the day, I try to leave the financial channels running in the background.  If I hear 3 traders all mention the same stock (for instance, “If Intel hits ____, I’m a buyer”) then, barring some unexpected news, everyone is piling into Intel at that price.

Trader’s Talk: First, let me say clearly that just because traders think something, it doesn’t make it happen.  This is just what was being talked about yesterday. 

“The markets, they are a changin’ ” has been the theme lately.  There are concerns that China will continue trying to put the brakes on their too hot economy.  Makes sense for them, but could cause some problems for us.  That was seen yesterday when McDonald’s took a fall on slowing China sales.  There will be more news on China next week when their latest inflation numbers come out.  If inflation remains high and if China looks like they will do more to try to slow it down, you don’t want to be holding anything Asian.  It will also cause a drop in our markets, so just be prepared.  Honestly, it’s needed with many commodities reaching multi-year highs.  It’s time for a cool down.  We are already seeing a cooling off in gold and silver (more on that below).

It’s believed that the dollar will continue to rise (UUP, the dollar up ETF, is the play), that interest rates will continue to rise causing treasury prices to fall (TBT is the short treasuries ETF, which everyone says they are taking positions in).  Interest rates actually fell some today when there was a successful auction of 30 year treasuries.

Gold hit a double top, which is an indicator that it could fail here.  Gold can make some very ‘violent’ moves so it is not for the feint of heart at these levels.  A double top means it hit the same high twice and couldn’t break through either time.  A double top is often a sign that a plummet in price could be in the offing.  GLL is the short gold ETF – but DO NOT play with things like this unless you really know what you’re doing!

Meanwhile, silver hit a 30 year high the other day.  The last time it was this high was when the Hunt brothers from Texas tried to corner the silver market (it didn’t end well).  Most traders feel silver’s gotten way ahead of itself and are closing their positions.  It doesn’t mean that silver couldn’t continue upward, it just means that traders are taking their profits and moving on.

Lots of speculation regarding NetFlix.  Traders have long been unable to fathom why this stock is seeing such aggressive growth.  It’s not a bad company, it’s just not as good as its price action indicates.  Yesterday, their CFO (who has been selling large blocks of his NFLX holdings) announced he was leaving immediately.  Scary stuff and if you are holding this stock, I would take profits and say goodbye for now.  Most traders are heading for the doors and plan to re-enter if it drops back down to 150.00/share.  If you are an active trader, you might want to take a short position for the possible ride down – just be very careful because this one has been a dangerous short.  The market does not like CFOs leaving, CFOs leaving abruptly and especially, CFOs who cash out before making the announcement.

So what do ‘da boyz’ like?  According to Anthony Scaramucci aka the ‘Hedge’, hedgies are taking a big interest in H&R Block (HRB).  It’s been beaten senseless for a long time now due to its involvement in mortgages, culminating in a 6% drop yesterday.  The feeling is that it has now been punished enough, all the bad news is built into the price and with tax season coming up, its best quarters are ahead of it.  This is the type of price action that traders watch for – expect to see them start building positions. 

I’ll let you know what I hear!