Opening Position
December 2009
Boy, does time fly when the markets are so much fun! We saw the equity markets hit a low back in March, after which they just went on a tear, continuing to the current time. And now, of course, there is so much speculation about the worst being behind us and how we can expect a V-shaped economic recovery. Can we believe all this?
Equities have been up about 60% since March, gold has been trending up since October 2008, and we’re seeing crude oil inch its way back up to the $100 mark. We have seen a lot of liquidity come into the global markets. We’ve also seen a decline in the value of the US dollar, which makes shorting the dollar and the carry trade two attractive options. The technicals may indicate that the bullish rally in equities and commodities still has room to grow. Similarly, the downtrend in the US dollar still has room, but these rallies can’t last forever. At some point, the US dollar will reverse and when it does, you’ll see a huge dumping of assets and the shorts frantically trying to cover their positions. This would be enough to send the equity and commodity markets into turmoil and possibly send them falling to where they started their climb. We should also keep an eye on the price of crude oil. High oil prices could fuel inflation, and this could throw everything out of balance.
Trending markets do generate rewarding trading opportunities, and I encourage traders to take advantage of them. But remember that trends don’t last forever. Bubbles in the market creep up on us and before you know it, they burst. This is why it’s absolutely necessary to prepare a game plan before you place your trades. You’re not going to place a trade unless you believe that the odds of price moving in a certain direction are high. But at the same time, you have to expect the worst to happen. Preparing for that worst-case scenario is what makes you a successful trader. What are the signs that will tell you that the markets are likely to turn around? Create an objective plan. Only then will trading become less stressful.
And less stress is what we want at this time of the year. As vibrant as these markets are, take some time off to spend with family and friends as the holidays approach. We at Stocks & Commodities wish all of you a joyful holiday season and a prosperous and healthy 2010.
Jayanthi Gopalakrishnan, Editor