BarroMetrics Views: Myopia

I spent the best part of today in the bankruptcy court: we had applied for a winding up petition against a company for failing to pay a ‘liquidated amount’. ‘A liquidated amount’ is a sum that is certain and undisputed.

In its defense, the defendant had alleged that the terms of the agreement were in dispute. Since this was the final day of hearing both sides lodge what is known as a skeleton i.e. a summary of the evidence and their take on the evidence.  The opposing barrister ought to have taken lessons in trading.  Why?

He exhibited the type of myopia best described as ‘I am right and the market is wrong!’.

At the beginning of his submissions, Her Honour indicated that she was of the opinion his submissions had no merit. This is like the market telling us that the trade is wrong. Instead of changing tack, the barrister in effect said: “I hear you but nevertheless I press my point’. Now if you are ever told in court by the presiding judge that she things your submissions are wrong, it is inadvisable to persist with the submissions - if you do, the result you will get is one very bad-tempered judge.

Well so far as the market is concerned, she won’t loss her temper but if you persist in the face of her advice that a trade is wrong, be prepared to wear the loss.

I mention this because in today’s Forum/Twitter service, I started the day short at 911’s. At 10:00 am EST, it was clear that:

1. There was above normal normalised volume. (Figure 1)
2. The volume was buying volume. (Figure 2)
3. Given (1) and (2), we were unlikely to close 50% of the open-gap.
4. Given (3), we were likely to have a trend day up.
5. This buying was coming in an area where a possible right shoulder of a complex Head & Shoulders should form i.e. in a sell zone i.e. we had a negative development setup (see Nature of Trends)

Given the above, I decided this was a low risk trade for a day trade looking for the market to form a trend day i.e. attain a 25 to 30 point day and close in the top 25% of its range. So I dumped my shorts and went long around 916 losing about 6 points on the shorts.  Had I decided to remain short given points (1) to (5), I’d have been like the opposing counsel - myopic.

FIGURE 1 Normalised Volume

Charts  through the courtesy of Market Volume

FIGURE 2 Market Delta

Charts  through the courtesy of  MarketDelta

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