Bit of a tangent today, but one with an important lesson for those of us that make an effort at following market-related events and news. TBH I don’t think this is much of a lesson, seems so obvious as to be hardly worth mentioning, but here goes.
From Professor Mark Perry’s blog, Carpe Diem,
Real Residential Nat Gas Prices Fall to 8-Year Low, Commercial Prices to 9-Yr. Low; Where’s the News? (not sure that I can link directly to this one post)
The whole story is pretty much there in the headline, but to expand a little (bolding mine):
The price of natural gas in December 2010 … was the lowest price in almost 8 years. You have to go all the way back to January 2004 to find a lower inflation-adjusted price for residential natural gas.
… prices for natural gas sold to commercial consumers … For those customers real natural gas prices are even lower today in inflation-adjusted dollars than for residential customers. The December 2010 price … was the lowest inflation-adjusted price since November 2002, more than nine years ago.
While rising gas and oil prices, along with concerns about rising inflation in general, have captured all of the media headlines recently, the price of residential natural gas has quietly fallen to a 7-year nominal low, and an 8-year real low in December 2010. I couldn’t find a single news story about this, demonstrating once again that “bad news sells” and good news is often ignored and overlooked.
Perry could not find one news story about this. Not one. Let that sink in.
Now, while this is not directly relevant to the financial markets (Professor Perry’s blog is more about the US economy than the US financial markets), its highlighting something to be very aware of if, like me, you try to follow market-related news. Often, one side of the story is not reported. Good news doesn’t sell newspapers/page views, resulting in a lack of reality in reporting/opinion columns etc.
For traders, its a really good thing, market volatility (something to take trading advantage of) is often created by gaps between what is reported as reality and what reality actually is . And not just volatility, strong directional moves can often stem from this gap and its (eventual) recognition … (think of the role of leverage in the context of market positions & as a driver of moves, something that motorway is discussing on his blog at present: The hardest cause to identify is the one that is universally present … if market participants are levering into positions on the basis of unreal perceptions, then the eventual unwinding is going to be sharp and probably extended).
And BTW, don’t wait around to only exploit the reversal move, the initial move based on faulty perceptions of reality can also generate large market moves, and therefore profitable trades. Irrational market moves can extend quite some way, and be very profitable.