File the News

News is a discount machine. More popular and emotional the news is, More discount it makes to the underline conditions. One indicator related to this is the magazine cover indicator. When major magazines put a development on their covers, the development is probably near its end from the trading point of view.

     

The two magazines above publish around March 22, 2008, which marks the end or pause of a major downward move of the general stock market. See the red circle mark in the S&P daily chart below.



For me as a trader, "File the News" has two main benefits. First, it gives me the signal to exit the position and take profits, even reverse the position. Second, it can remind me that I have to turn my attentions to other areas for opportunities.

This is the lesson I just learn. Before the March this year, I short the stock market in general and financial and consumer stocks in particular. I keep looking negative news and commentaries to confirm my positions. Between January and March, more and more negative news appear on the media, just like two magazines shown above, so I tunnel myself into one direction. I ignore positive developments that the natural resource and energy stocks hold very well, and transportation stocks actually move up. From March to now, many stocks in these sectors have spectacular moves. CLF is just one of them.



So I lose paper profits of my short positions in general market index futures and profit opportunities in long positions of these stocks. Open mind and having a broad picture of what are happening are important to a successful trader.