Sunday, April 12, 2009

Financial Fun

Expect a lot of volatility in the Financials this week with the news of GS offering and GS earnings. The "stellar" earnings on WFC has set the bar very high for the rest of the banks and "sell the news" reaction on other bank earnings would not be surprising.

XLF closed right at resistance. As much as we think this bank rally is overdone, we have to admit that this actually is a very bullish chart IF it can base under resistance for a few days and then have a high-volume breakout. We always tell each other that we think/feel is irrelevant; we feel bearish but we've been trading this rally long because that is clearly what the charts have shown in the last month. Opinions are fun and we talk to each other about how we "feel" all the time, however when it comes to actually putting our money on the line, we always defer to the charts.

If we had followed what we felt (our emotions) instead of what we saw (charts) we would have, without a doubt, given back all our ytd gains by buying FAZ SRS over the last few weeks. Decouple your emotions from your trading. Allow yourself to feel/voice/cry over whatever you want, but when it comes to actually pulling the trigger, always follow your system and not what you want/feel. If the two fall into synch, wonderful, if not, too bad, but do not even give yourself the option of following your emotions over what you see ahead of you (chart trends).

The bears will have their day in the sun again and we'll join them on the dark side; once the charts confirm the break of the rally.