Or the other way around, depending on particular actions. As applied to financial markets, the equities, it is just that “Buy the rumor sell the fact”. This is one of those market mantras that almost everybody knows and marvels about the implied “wisdom” within, but is nearly useless to make money with. I was thinking about it yesterday. Few months ago right in the middle of of the worst news, stocks started to rebound and went on a very good run. Last few days financial news were full of signs of recovery. Virtually all major economies reported that recession is over or nearly so. In Australia they went as far as to say that they avoided recession altogether. Sure, whatever. How do markets react to all these great news? With a good size sell off. Buy the rumor, sell the fact.

This reminded me so much about British Pound at the beginning of 2009. Everybody was burying GBP, with the blessing of press in Great Britain. Calls for parity with EUR and 100 level with JPY were rampant. That is when the Pound turned, right in the middle of the worst news imaginable. Funny how it works.. Or doesn’t. Current news for GBP are not rosy either, with large drops in virtually all pairs. Could it be the case that it is good time to start buying? General sentiment is not the best of market timing tools, one needs to be a little more precise. That’s why I use charts, for the lack of anything better. BTW, read the comments to Inflation  post, where Vlad mentioned trading desk at Goldman Sachs, which had only 2 loosing day last quarter. I think it pertains to currency trading desk. Wow!

Those very comments also had a  good exchange about GBP-JPY. I kept myself out of it, but placed an order about the same time. Interestingly enough, looks like both participants were, or could have been right on the direction, depending on the timing. On the flip side, the price could have faked everybody out both ways, before assuming a direction. My trade was to the downside, with the objective of previous low. For the large part price stayed within the range established late yesterday.

Price went down, my trade produced 62 pips. Then it bounced. The 149 level becomes attractive sell point for those who believe this pair is heading lower. Market painted this fairly wide congestion area between 150.60 and 149. Scalpers should have a great day today playing it both ways. In my mind market favors a swing up out of this zone, so, for now, buy order is placed at 150.68, with an objective of 152.00. If that happens, I’ll have to zoom out to bigger, more dominant time frame and reevaluate. Trade in GBP-AUD, from yesterday, is largely where it was yesterday, at a starting line. It will be discussed in more details in the next post, providing there is something to talk about.

Mike K.