Maybe it was pre-Friday-the-13th jitters. Perhaps it was reports that Iraq supplied al Qaeda with VX nerve gas. Maybe traders are uneasy ahead of Friday's wholesale inflation, producer price index report. The reasons for a rally to a contract high in February gold (GCG2:COMEX) and a decline to a contract low in the March dollar index (DXH3:NYBOT) don't matter.
What is important is what these moves say about investor sentiment. The move to a high of 333.50 in February gold shows the market is afraid and that it doesn't want to be caught holding long dollar positions ahead of the weekend. Flight-to-safety moves were also seen in the rally to a three-week high in March T-bonds (USH3:CBOT) and to a near-contract high in the March Swiss franc (SFH3:CME). Moves in these traditional safe-haven vehicles work to confirm the prevalence of fear throughout the markets. All told, the flight-to-safety moves demonstrate that fear is dominating the market's mood. That's bearish for stock index futures, good for precious metals and bad for the buck. Chavez's conundrum in Venezuela and growth-stifling higher oil prices can only sour the mood. How might this affect trading Friday? Thursday's show of fear enhances the odds that stock index futures -- March Dow (DJH3:CBOT), S&P (SPH3:CME), and Nasdaq 100 (NDH3:CME) -- will trigger out of their pullback from one-month low setups and continue their recent slide. The fear factor could also fuel upside momentum in gold and March silver (SIH3:COMEX).
Honor Thy Stop
In trading, identifying and entering trades is only part of the game. Money management is by far the most important -- and least often discussed -- element in obtaining consistently successful results. While we'd all like to put on winning trades 100% of the time, there's no way that's going to happen, so using a viable money management program is tantamount to success.