Savings Experiment: Snow Removal
The Money Man Behind Rick Santorum: Who Is Foster S. Friess?This post was written by Minyanville contributor Smita Sadana.
On 2/2, a trading buddy asked me if I would short MasterCard (MA); reason being that financials are looking weak and MA has reached 50-day moving average which could act as a possible resistance and might turn the stock down.
My reply was a unequivocal NO, I wouldn't short MA. Here were the reasons.
1) Financials are weak, down 11% from the high; but notice that MA has not given way. Reaching 50-day moving average is another sign of strength. I don't engage in horse racing, but placing a bet that a strong horse among a group of weak horses will lose, didn't seem right to me!
2) If you look at the chart, the real resistance has been at the downtrend lines; 50-day moving average has never really acted as one, since MA has repeated overshot it. The yellow line is a more powerful resistance than even the red line, since it encapsulates more recent action. We need to pay attention to the recent action in stocks; sometimes moving averages are just a line in the sand, and at other times, they are firm boundaries that price cannot take out.
3) Earnings were released today. I, personally, desist from taking trades (long or short) before earnings. As I have shared with many, my aim is to mitigate the 'unknown-unknown risk factors'. I prefer to initiate most trades after the earnings have been announced.
So, I wouldn't have taken the trade since it didn't provide me with any edge. So, you'll ask, what's the cause for my jubilation with MA up $10, when I had no position to begin with?
Dollars made/lost on not taking any side of the trade : 0
Lesson reinforced that it is more important to 'develop an eye for the trades' than to catch every trade: Priceless
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