When They Can’t Sell Off On Bad News
- Posted by JC Parets
- on October 2nd, 2013
Nothing gets me more bullish than when they’re selling selling selling, but then rally them on bad news. This is the opposite of the old, ‘Buy the rumor sell the news’. In this case, they are selling the rumor and then buying the news. Same concept though.
I bring this up because Natural Gas and Crude Oil have been perfect examples of this setup over the past week. First Oil. Coming into Wednesday Sept 2nd, Crude Oil futures were down 8 out of the previous 9 sessions. Weekly inventory reports come out at 10:30AM Wednesdays. So my mentality was, buy this weakness and if they sell them even harder after the number, buy some more. After getting slaughtered the past week and half, I’m a better buyer down here than seller. Sure enough, bad news comes out (more inventory than expected) and they couldn’t keep oil down. They bought them right up instead. It was beautiful.
Now on to Natural Gas. These guys come out with their inventory reports on Thursdays at 10:30AM. Coming in to last Thursday’s report, Natural Gas was down 7 out of 7 previous sessions. “Come to papa”, I was telling myself. If they sold them after the number, you had to buy the dip. Sure enough, bad news came out and the sellers could not keep control. Natgas put in a beautiful Hammer Candle, and has followed through nicely to the upside ever since.
I bring this up today because it’s something that’s been on my mind lately, especially after both Crude Oil and Natural Gas pulled the rug out from underneath the greedy trend followers. This is a great setup primarily because of the low risk entry points that correspond with this type of strategy. Once you’re in after the number comes out, your stop is those lows. As long as you’re disciplined, there is no reason why you should get really hurt doing this.
And these two energy contracts are just a couple of examples. You can make the same argument about a stock getting crushed that comes out with a bad earnings miss, or a hot money name that reverses on an earnings beat or upgrade. Again, it’s the low risk entry points that make this one of my favorite strategies.
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J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He earned the Chartered Market Technician designation (CMT) in 2008 and now actively manages money incorporating Technical Analysis and Behavioral Finance into his practice More
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