Waiting Out The Storm?

Over the past several weeks we have received emails from subscribers with excellent questions about how the rise in oil prices may affect the financial markets. Some have suggested that maybe the time is right to go to cash and "wait out the storm."

A good friend and experienced trader, Mark Seleznov of TrendTrader.com, recently wrote an article about the rise in oil prices, and with his permission, we will use parts of it here:

"TrendTrader Trading Times" August 15th 2005, Oil Prices

"Oil prices closed at record highs on Friday August 12, 2005 at 66.86 for September delivery. Oil prices are up 53% in 2005. The continued rise in energy prices is surprising to many. Gasoline is at record prices as well. There does not seem to be a shortage of crude as prices are rising. Refineries are making the gasoline and heating oil we need and there are no reported shortages of distillates. There are fears of refinery disruptions, but we really have not seen any yet."

"High energy prices should be slowing demand. But it has not been the case. As prices rise, the common wisdom is that demand will slow. This may be true in certain commodity prices as alternatives exist. Unfortunately, gasoline, jet fuel and heating oil do not have any substitutes. If steak prices rise to prices above normal, there are chicken, pork, and other food alternatives. When sporting event ticket prices rise to levels that consumers find ridiculous, fans find other forms of sporting entertainment."

"...Some have sold stocks months ago when oil was breaking 30, 40, and the 50. They were too early as stock prices continued higher."

"Are oil prices being manipulated?... The debate will continue about why oil prices are so high and where they should be. I don’t think that many understand why oil prices continue to rise, but they are rising. There are predictions that oil will hit $100.00 a barrel."

"I follow trends in the market and often have trouble coming up with fundamental reasons why these trends last as long as they do. This includes both the upside and the downside price action."

"I do believe that these higher oil prices will have an effect on the general economy. Almost every industry is effected by energy prices either in the manufacturing process or in the distribution process. Companies will be forced to raise prices just to earn what they earned in times when energy prices were lower. Consumers will have less money in their budgets as energy eats away at their paychecks. Every consumer spending area from restaurants, entertainment, leisure spending, travel, etc. will be hurt. This is basic economics 101. The question is at what level? Some have sold stocks months ago when oil was breaking 30, 40, and the 50. They were too early as stock prices continued higher. I am not saying that they may not have been right. But so far, companies are still reporting earnings in line with expectations."

Key Sentences

The key sentences were: "Some have sold stocks months ago when oil was breaking 30, 40, and the 50. They were too early as stock prices continued higher."

While it appears certain that higher energy prices will adversely affect the financial markets at some point, running for cover just does not make sense. Those who exited months ago may have lost substantial profits.

Everyone tries to forecast what will happen next in the markets...over the coming weeks and months. That is what every individual trader, money manager, fund manager, etc. is trying to do. Many will place their money (or your money) on the line according to what they believe will happen next. Some will be right, many will be wrong.

The financial markets are extremely complex. We may think one news event will change the market's direction, but there is so much more involved.

Trading Trends

This is why we trade "trends" here at FibTimer. The financial markets will do whatever they are going to do, and no matter how hard anyone tries to outsmart them, it is impossible to do it consistently. You may get one guess right, but the next one will cost you a bundle.

So we allow the markets to tell us what to do, and we follow along for the ride. That means we do not jump the gun and exit because we "think" the markets will decline. We do not hang our hopes on any single indicator either.

We do not buy because everyone else is buying, or sell because everyone else is selling. These are sure tickets to financial losses.

It May Sound Too Easy...But

It may sound overly simplistic, but the way to profit in the financial markets is to wait for the markets to trend, and then jump on board and ride that trend to the end.

Which ever way the trend goes, that is where FibTimer subscribers will be. Whether that be bullish in a rally or bearish in a bear market, if you follow the trend, you profit.

Trend trading has placed market timers on the right side of every trend, every year, for many decades. And it will continue to do so.