Friday, November 27, 2009

Market-Moving Events

Today, the stock market opened about -2.5% lower due to the Dubai debt worries. This caused dislocations in many markets -- ranging from currencies (US dollar higher against all currencies except for the Yen), to commodities (precious metals, oil, etc. all lower, as the dollar strengthened), to fixed-income (bonds higher as global stocks dropped).

Times like these are why we like following our computerized and systematic trading approaches. Our disciplined approach takes much of the emotion out of trading the markets. Market-moving events create both opportunities as well as a warning sign to control risk (money management!).

Risk Management and Trading Systems
The core strength of many trading systems is the risk management approaches they use to manage and minimize losses. Today, our systems will "take some chips off the table" -- but will most likely re-enter many of these markets (as this will probably prove to be a "buying opportunity" to enter some of the more-established trends that have developed in the markets).
Some of these longer-term trends include:
  • Short US dollar; long foreign currencies
  • Long gold and other commodities
  • Long bonds; long stocks
Stock Market Indicators
At current levels, our overbought/oversold indicators have shifted to "Long." Our Long-Term indicators remain long. Our short-term indicators are mixed because the market has rallied off of today's opening lows. Several sources believe that the Dubai worries will be a "blip" -- and our indicators currently agree.

Volatility Trading
Market-moving events cause big moves in volatility -- and today's downdraft allowed us to collect some good option premium.

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