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Thursday, January 8, 2009

Monitoring Crude Oil News vs Prices to a Trader

This phenomena happens all the time, but just in case if you haven't seen this, or is not convinced, here's one (out of hundreds) of daily example where prices reflect news much faster than news can reach an average retailer like ourself.

Recall my earlier article last night at 11.45 PM last night(http://fusioninvestor.blogspot.com/2009/01/nymex-crude-oil-head-shoulder-formation.html), where I posted the Head and Shoulder formation, and when price breached the neckline at around $47.6.

I have just googled and found the news a few minutes ago (approx 7.30 PM today) which explained the sharp sell off in crude oil price from $48.x to $42.x.

The news is here:

According to Google, this news was published apparently just 2 hours ago, or approximately 5.30 PM today.

Which means there is a time lag of approximately 18 hours.

Which means if you had decided to act on the basis of the news, you would be 18 hours too late.

18 hours is a long, long time. Current price touched a bottom of $42, and is now around $43 at the time of writing.

Which is why, I stick to my belief that current prices tells me everything that I need to know, for a deep and global market like Nymex Crude Oil.

Fundamental news like this - by the time it reaches an average retailer like myself - is simply too late. (The smart money of course pays for their news in order to get it sooner, but such paid subscriptions are usually too expensive for the average retailer, and you would still need to monitor such news. If you need to monitor news, why not monitor prices which is more direct?)

I know that by the time prices have settled down to a new level, the reason for the price fall will only be revealed later. For a move this size, I expect there to be a good reason of course, and in this case, the reason is due to new inventory figures showing increased stocks, which is bad for prices. But despite the good reasons, waiting for these type of news to come out - no matter how good the reason is - is simply too late.

In other words, whilst knowing the reason is useful lessons for the future, it is usually too late to act. The only real-time indicator that's important to a trader with open position is to monitor current prices, and to a lesser extent current news.

Prices are king, everything else is secondary.

For future reference.

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