If You’re Listening, Then You’re Buying
by Jeff Clark
July 27, 2006
I started off this week by generating a lot of controversy.
First thing Monday morning, I recommended my Trade of the Week subscribers buy call options on a housing stock.
Just a few minutes after the recommendation went out, I received three e-mails from colleagues. Each one subtly suggested that I ought not to be drinking so heavily in the morning.
After all, I’d have to be drunk to be recommending call options on housing stocks when the entire sector has taken up permanent residence on the NYSE’s list of New Lows.
I responded by e-mailing back the simple two-word phrase that my Korean Tae Kwon Do instructor says when he’s afraid I’ve missed the real meaning of a lesson… “Better Listening.”
You see, there are two ways to listen to the stock market. You can take what the market says at face value, or you can dig deeper and try to find the real meaning…
It’s kind of like when your wife asks you if the pants she’s wearing make her look fat. If you respond to her question at face value, then you’re likely to be dining alone that evening.
On the other hand, if you look for the deeper meaning behind her question, then you’ll recognize the opportunity being presented (Gee, dear, you look gorgeous no matter what you’re wearing).
And so it is with the stock market.
Last Friday, the market was telling investors on the surface to sell housing stocks. But if you looked deeper, you’d have noticed that the sector was making new lows on lighter volume.
The Bollinger Bands were coming together indicating that the stocks were about to make a major move. And, all the housing stocks were trading more than 30% below their 200 day moving averages – an extremely oversold condition which typically leads to sudden reversals.
Indeed, by listening to what the market was really saying, my colleagues could have profited from the opportunity being presented
Oh, and by the way, the call options I recommended on Monday morning doubled in value by Tuesday.
“Better Listening…”
Best Regards & Good Trading,
Jeff Clark
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