Taking Gains from Tomorrow’s Headlines

Obviously most of last week’s financial headlines relate to the Japanese earthquake and the market’s reaction to it:

• Crude Oil Prices Falling On Japanese Economic Worries

• Earthquake Knocks 50 [trillion yen] Off TSE Market Cap

• U.S. Stocks Tumble On Japan’s Nuclear Crisis

Once again it’s a lesson on the great fundamental/psychological forces of risk-appetite/risk-aversion as a sentiment-vector moving the markets. We are in the grip of risk aversion and market sell-offs.

But let me show you some future headlines:

• Nikkei Starts Recovery as Nuclear Fears Subside

• U.S. Stocks Surge on Nikkei Recovery

These headlines will happen…we just don’t know exactly when.

They will happen because of the laws of price action and crowd behavior. The market has a “crowd-mind” that trumps fundamental and technical factors.

Look at the chart below. It shows the S&P 500′s movements after the Chernobyl disaster. Notice how initial fear generated a sell-off and then a retracement.

Now look at the market moves from last week.

We can see that the co-movements of the Nikkei, S&P 500 and the Dow didn’t just happen in the past week. Instead they are part of the intermarket nature of investment flows and trading psychology. Clearly the market’s recent swarming behavior starts with the Nikkei movements, cascades into European markets and then U.S. equities.

Now is the time to pay close attention to the Nikkei.

As I was writing, the following headline came across from Japan:

The classic sell-off and then retracement action is beginning, as we can see in the chart below.

Let’s translate this into trading opportunities, and in particular binary option trading.
Obviously we can trade the Nikkei binary directly. But Tokyo is 13 hours ahead of us, so we don’t start seeing bids and offers until about 8 p.m. EST. That makes it inconvenient for most folks.

Luckily, the interconnectivity mean we can play a recovery in Japan via a trade on the U.S. markets. They are now nearly synchronous. The question is, which binary option strike prices should we choose?

The opportunity for very large returns by catching a shift in the sentiment persuades me to look for the binary contract strike prices that offer at least 5:1. They are low cost and provide a chance for unusually high returns.

That’s why I suggested an S&P 500 binary last Monday to my Strategic Currency Trader subscribers. And I believe the “future headlines” will offer even more plays for double and triple returns in the days ahead.

Sincerely,

Abe Cofnas
Currency Analyst for the Penny Sleuth

Taking Gains from Tomorrow’s Headlines was originally featured in the Penny Sleuth. Check out Wall Street’s 5 Most Profitable Penny Stock Patterns Report.

This story was originally featured on Penny Sleuth.

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