Deep Market Thoughts – Moody About Moody's (MCO) and Parabolic Oil (USO)

• Posted by Howard
• on May 21st, 2008

We live in confusing times. Information is supposed to bring power, but what happens if there is to much information?

Obviously noise.

Filtering becomes important and eventually a hugely profitaable business and as I try and preach here with respect to the markets (I don’t always practice) you should follow…PRICE!

We have definitely become fat and lazy, not just with our diets, but with our money. The Moody’s (MCO) debacle is all about conflicts of interest and greed. The story is old and repeats itself in the financial industry. The price action since peaking many moons ago dictates that it’s just another chart. All the news does today is cripple mood.

Oil is another story. The oil executives are being scrutinized for profiteering while the financial executives are sneaking away for UNprofiteering. It’s upside down. Oil is a freight train, that I have been long, yet traded against the trend yesterday and this morning….based on feel and hedging. That’s amateur hour and goes against everything I work hard NOT to do. My time would be better spent elsewhere.

The Chairman has a chart of the freight train I stood in front of (click to enlarge):

This weekend, Eric from Blackstar sent me an email that he was getting scale out trades in oil and basic materials. The last time their fund (I have an allocation), had a scale out trade on the long side from profits was in October of last year. IT WAS CHINA . Here is the post I wrote:

Parabolic rises can be fun if you are aboard, but it does not generally end well.

China has gone parabolic. Check out the FXI today, which I should be long. It was up NINE (9) percent TODAY. This is after being up 100 percent just this year. This is a country index, not just one business. LFC (China Life Insurance) was up 11 percent today.

Don’t think China is immune from a crash. With oil now at $86, the Saudi Arabian stock market has still managed to crash over 70 percent.

Tonight I got the most telling evidence of all about the parabolic move that’s underway in China…an email from my pal Eric at Blackstar:

Getting scale out trades in many China related stocks. The party is getting old, but still could go more parabolic, of course.

Even trend following systems are ‘locking in’ gains. That does not happen too often.

Don’t be a hog!

He qualified this email with a second one saying that although he was getting some basic material and oil scale out trades, he was getting new entries as well. That made it different than the China scale out trades. Of course, I globbed onto what I wanted to read and shorted USO.

Obviously, the best way to call a top or bottom…KEEP CALLING IT . You won’t make your investor’s money, but you will get lots of assets under management and fees .

I don’t do that here. I take my small lumps as reminders of how hard making money in the markets can be and how standing in front of trends makes it harder, more time consuming and more stressful day to day.

All that said, this parabolic oil move will not end well :) .

PS – Thank-you Aaron Task (Yahoo TechTicker) took me to town on an email this morning after I took the loss (he follows my twitterings). He was not rubbing it in, just reminding me how I make money.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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