Smart Money says... (Are you the sheep or wolf?)

Smart Money Says... Corona Del Mar, CA   Hey ,   I remember watching a clip a few weeks ago where an analyst was freaking out about 4th of July prices...   ...how prices of food and fuel could only go up.   Normally I would just brush these things off, but I wanted to take a mental note of his wild predictions for this newsletter.   These wild predictions get a lot of attention, but they rarely ever pan out (this one clearly did not).   Let's peer behind the curtain and take a look at the recent panic and foolishness in the price of wheat. The top chart shows the price of the wheat ETF (WEAT). It trades just like a stock.   In fact, you can buy just about any commodity using an exchange traded fund.   The chart below shows the percent premium people were paying over the actual holdings.   It might be a bit hard to read, but as the Ukraine conflict started, investors paid a whopping 8.77% over the value of the wheat futures this fund holds.   That's insane!   Luckily, most ETFs have a much more stable premium, but I thought it would be a great reminder to STOP reacting to news events.   What you SHOULD be reacting to is legal insider info like the premium/discount above...   ...or what the Commitment of Traders is saying...   ...or fund flows...   ...or fully tested price-based strategies (like momentum, mean reversion, breakouts, spreads, relative strength).   Speaking of the COT...   Let's take a look at the numbers: Small traders are still selling.   The path of least resistance is for the S&P 500 to go up.   Quick story...   It was April 3rd 2009, and Tony Robbins was sounding the alarm that the stock market was going to tank.   He had been interviewing a bunch of fund managers for his book, and I guess they talked him into taking a really dark view of the markets.   Meanwhile, I was at lunch with a buddy.   He told me he had just liquidated a portion of his 401k to pay bills.   He had the look of defeat in his eyes that I'll never forget.   When the clock struck 12:30PM, I brought up the CFTC web page to see if there was a confirmed buy signal.   There was.   I didn't have the heart to tell him, but I ended up spilling the beans about it on an old podcast.   It turned out to be an amazing trade as the S&P 500 launched upward over 30%.   What my buddy didn't know was that the COT showed a massive amount of small traders just like him selling.   These folks react to news events instead of anticipating them.   It's often these traders that cause wild imbalances in the markets...from which you and I can ultimately profit from.   The speculators that got caught up in the meme stock madness of 2021 quickly discovered they were actually the sheep, not the wolf.   Data provider S3 (whose data we're examining with machine learning) was explaining that short interest in these stocks was NOT over 100%.   Newbies and even a billion dollar hedge fund were incorrectly calculating the short interest.   Barely anyone listened...and they lost money in droves.   Keep these stories in mind when you make your next trade.   I want you to be the wolf, not an even-toed ungulate (sheep). Trade smart,   Dan "Prince of Proof" Murphy                           Portfolio Boss, Inc. 260 Newport Center Dr, Suite 100 Newport Beach, CA 92660   Don't want to stay in the loop with Dan? We'll be sad to see you go, but you can unsub to no longer receive emails.   Government required disclaimer: The results listed herein are based on hypothetical trades. Plainly speaking, these trades were not actually executed. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under (or over) compensated for the impact, if any, of certain market factors such as lack of liquidity. You may have done better or worse than the results portrayed.