Theory vs. Action

Successful market speculators and traders, are not intellectuals.  There’s a difference between smart and savvy.

This is why scientific professionals such as doctors and engineers (author’s empirical opinion), are some of if not the worst market losers.

That statement is backed up by many sources, just two of which are below:

In Dr. Alexander’s book Come Into My Trading Room, he gives a brief reference to a Cybernetics PhD., market trader that had to ‘overcome’ his intellectual superiority to be successful.

In Market Wizards, Ed Seykota discussed a need to use his MIT Engineering degree (his intellect) in ways that won’t hurt him too badly in the marketplace.

There are now two theories on the U.S. bond market (links below) and we’ve been monitoring that market closely.  The bond action, TNX, looks like it’s about to break out with rates higher.

On Friday, we saw the market and bonds move lower together. 

The next meltdown may be a simultaneous collapse of the market and bonds.

The effect of such a move would be to wipe out retirees, the middle class and wealth management firms all at the same time.

Bond theory says, bonds will remain under control and interest rates low.  Bond action says, bonds will be sold off with rates rising.

Going to price action of the 10-year, it’s critical juncture status from the last post has not changed.  In fact, price action shows bonds even more tenuous.

Professional trading is based on price action, not theory.

At this juncture, going short (selling) the bond market (not advice) appears to be the lower risk position.

The past week has the press and public all aghast at a minor (percentage wise) blip lower. 

We’re probably on the last bubble for this cycle.  The markets could ‘air-pocket’ into several gaps lower; say, 25% – 50%, overnight.

Be Prepared

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.
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