San Diego bobl 18:03 GMT December 12, 2008
fundamentals vs. technicals:
I noticed in the help forum several discussions on trading fundamentals vs. technicals. I thought I'd offer my thoughts here in hopes of helping traders understand the relationships.
First, and foremost, the markets are discounting mechanisms. That is, in most cases you witness the price movement but don't get the fundamental data that inspired the move until later. It's well known the equity market leads economic activity. Why? Because it is always big money, smart money, that knows what is coming down the pipeline. Bonds lead stocks....fact, whether inverse or the other way around. Again, because big money knows the fundamentals before the public is let in on the facts. Look at the history of oil...and the diversity of things you hear from OPEC. How come earnings come out great and the stock tanks? Or vice-versa. It's just a fact of life. Look at the commodities page in the wall street journal...........you'll see totally unexpected moves, and then when printed, it trades the other way. Again, big money knows the fundamentals, which do govern ultimately how things trade, but the little guy is the last to know. For me, that is why I play price as the final and only arbitar of price behavior, and intellectually attempt to grasp the fundamental driving force.
I might add that serious traders should study inter-market relationships and their effects on each other. And time is worthwhile spent understanding and interpreting COT (commitment of traders) reports. Almost always the commercials establish positions of size and force long before the small traders, and are proven right. They know...... they are the producers, and more than anyone are in direct touch with the progress of physical and financial assets.
Think also about Lehman Bros., AIG, Fannie and Freddie Mac et al. Somebody sure as heck knew what was going on before we had a clue.
Food for thought.