Sir Isaac Newton and the Caveman

 

Date: 6/14/2022
Author: Chris Hood

 


Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.


I’ll assume you noticed the massive gap down in SPY last Friday.

Obviously, last week’s Consumer Price Index (a CPI report) didn’t sit well with investors. Inflation is running rampant and sits at the forefront of everyone’s mind.

Financial analysts everywhere love to hone in on specific reasons for the market decline.

Each has his own pet theory.

Inflation. Supply chain woes. Oil and food disruption due to the Ukrainian War.

It may be any of these, a combination of causes, or something entirely different.

For instance, did you know that just last month, the USA reopened Congressional Hearings on the existence of UFOs and their potential threat to national security?

Well, they call them UAP now. Unidentified Arial Phenomena.

UFO just sounds too 1950…I guess.

So maybe the little grey men from outer space are to blame for the market woes.

The REASONS for market activity might be a primary concern for economists (and conspiracy theorists). But, as a professional trader, the only thing that consistently matters is HOW the market is moving at any given time.

And everything you need to know is in the chart. Theories just don’t matter to my P/L.

Let me summarize this in another way.


 

 


Assume that Ugg the Neanderthal stood next to Sir Isaac Newton, the esteemed scientist. Both are positioned directly under a falling boulder.

Ugg’s assessment will likely be simple.

Falling rocks kill animals and people. The great sky gods push them down, violently smashing skulls and breaking bones.

On the other hand, Newton knows that gravity causes the boulder to fall. He knows the stone’s acceleration is 9.8 m/s2 and can calculate the force of the impact.

Yet, in the end, only one thing matters.

Ugg and Newton must move before the rock hits them.

Trading is just like this. It’s wonderful to have your own ideas about what controls the market, as long as they don’t prevent you from keeping yourself alive. Never get so lost in theory that you ignore reality.

Based on technical analysis of the charts, the market has been falling since the first week of January.

Yes, there have been short rallies, but those didn’t change the trend.

Events like the CPI report just act as catalysts to accelerate what’s already happening. You don’t need a Ph.D. in finance to understand that weekly and monthly charts moving from top left to bottom right are bearish.

Understanding a trend’s causes might get your paper published in a prestigious economics journal.

However, it won’t make you a dollar more money than someone who looks at a chart and trades the downtrend.

We’re here to make profits.

So focus on the charts, follow your indicators, and leave it to others to argue about why you’re making money.

Cheers,
Chris Hood

 

PS – My subscribers and I took another nice 80% win on XOP last week. Even playing a conservative and defensive game, it’s possible to make gains in this market mess. Click here to find out how we did it.

 


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