Trade The Journey

Trade The Journey

Reflections II

Top of the Morning! It feels like everything is returning to normal except for the prices. Upon returning home, I decided to stop at a local gas station to refill my tank. Unfortunately, gas prices had risen to almost $5 at most of the stations in the surrounding area and $5.50 closer to the airport.

I drove around and was able to find a station whose prices were close to $4.50. When inflation begins to hit your wallet, it isn’t a theory anymore.

As the stimulus payments to the public slow down and people have to rely on their income, how will the economy fare with rising prices?

A lingering concern continues to be inflation, even though yields drifted downward for the past week. The ten-year treasury is one of the most-watched gauges of inflation concerns for several reasons.

A bond and its yield move inversely or opposite to each other. If the price rises, the yield drops, and when the yield rises, the price drops.

I check the yields and prices of different maturity bonds daily to track investor confidence. When times are good, people are more likely to place their capital in riskier assets like stocks, crypto, etc. Conversely, when the economy slows, people are more likely to invest in safer investments like treasury bonds.

An investor/trader has to be aware of yields, commodities, sentiment, economic indicator/data releases, and the overall trend of the markets. Between these different asset classes are complex interrelationships.

For example, the price of crude oil affects most industries and the products that we use daily. Therefore, if the costs incurred to produce and transport rise, eventually, the cost to the consumer will increase as well.

You can gain a sense of these costs the producers incur; you can watch the Producer Price Index. For consumer prices, you can track the Consumer Price Index or Personal Consumption Expenditures Index. The Federal Reserve closely watches the Personal Consumption Expenditure Index.

Weekly, different economic data reports are released to the public that indicates the health of the economy. Most of the indicators are lagging, but they give you a sense of where the economy might be headed.

It can be challenging to keep track of all the indicators needed, but some of the latest platforms have a calendar like Thinkorswim. In addition, “Trading Economics” is an excellent website to get the latest numbers.

When you view these numbers, you have to formulate a hypothesis about the company’s potential future based on the evidence. This approach to analysis is known as a top-down approach.

The idea is that the economy’s broader movements will trickle down to the industry and the company. In swing trading, you can be affected by the broader movements because you hold a position longer.

Increasing costs of Money, products, and services are a major concern for most companies because it lowers their profit margin which means less money for investors. Material costs are a major concern, but so are the increasing rates, which strain the companies’ options for financing. There are also supply chain issues arising from the increased demand and countries in various stages of Coronavirus safeguard measures.

Most experienced traders and investors know of these indicators and indexes have their platform specifically set up to track updates.

Nothing is certain, but by developing a forecast based on the evidence from these data releases, you have a better chance of capitalizing on opportunities.

Some possible brainstorm exercises:

What industries will be affected by the reopening?

What are some of the products and services companies will need to tap into the demand?

What are the trends in these industries?

What broader movements in the economy and world can affect the recovery?

The purpose of the questions or exercises is to help you visualize possible outcomes.

These strategies should be flexible and continually updated to match the current state of the market.

The economy, the market, our lives are continually proceeding through cycles. These cycles are never-ending and are influenced by surrounding events. The key is to discover what cycle we are currently in and the next cycle we are translating into.

Inflation is a factor that can influence the business cycle to move from boom to bust.

In this scenario, most people will transition out of risky assets into safer assets.

There are plenty of books and websites that dive deeper into business cycles and how to profit.

Hopefully, this post inspired your interest.


Week in Review:

All in All, it was a good week. Thankfully, I had some money in my savings to assist me in purchasing some of the things I needed like a heart scan for my dog and car registration. That’s just a few of the major purchases I needed to make this past week.

It’s times like these I’m grateful, I saved a small amount of my paycheck and invested it. This one adjustment has returned dividends both financially and spiritually.

Grade: C+

Reason: Continued improved effort.

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