This is the sort of thing that should drive a trader insane…
Monday morning, my traditional indicators suggested it was time to short energy stocks.
We saw a breakdown in prices across the board. Stocks ranging from Exxon Mobil Corp. (NYSE: XOM) to Valero Energy Corp. (NYSE: VLO) went negative — and sharply. Here’s the VLO chart from Monday…
The Wall Street Journal (WSJ) reported Monday morning that OPEC+ was considering a production increase of 500,000 barrels per day during its upcoming meeting.
The effort would provide some comfort in the energy sector at a time when Russia faces a price cap.
But after the Energy Select Sector SPDR Fund (NYSE: XLE) slumped… as shorts piled into the trade and energy momentum went negative, the rug was pulled.
At noon, OPEC denied the WSJ report, and oil stocks squeezed higher.
It was all a trap. Is there anything that isn’t manipulated in these markets anymore?
What Are These Journalists Doing?
How does the WSJ get this big story wrong?
In a month that saw countless outlets praise Sam Bankman-Fried, only to see him turn out to be on par with Enron and Bernie Madoff, this sort of story led to a swing of billions of dollars in just a few minutes. The company cited delegates from OPEC’s upcoming meeting in December.
Here’s what the WSJ said this morning…
“An increase of up to 500,000 barrels a day is now under discussion for OPEC+’s Dec. 4 meeting, delegates said.
The move would come a day before the European Union has said it would impose an embargo on Russian oil and the Group of Seven wealthy nations’ plans to launch a price cap on Russian crude sales, potentially taking petroleum supplies off the market.
Any output increase would mark a partial reversal of a controversial decision last month to cut production by 2 million barrels a day at the most recent meeting.”
As a result, WTI crude fell into the mid-$70s during the morning trading hours..
But just a few hours later… we received a press release from OPEC+. It reads:
“OPEC+ does not discuss any decisions ahead of its meetings,” Saudi Energy Minister Prince Abdulaziz bin Salman said in a statement. “The current cut of 2 million barrels per day by OPEC+ continues until the end of 2023 and if there is a need to take further measures by reducing production to balance supply and demand, we always remain ready to intervene.”
After the news, oil prices rebounded sharply. Anyone who was shorting took a hit.
How did the WSJ get this so wrong? It’s just the nature of these markets right now. It’s hard to trust and verify information — even from the leading media outlets.
This is another reason why you should set stop losses on your trades.
Playing the Stop
If you’re like me, you’re a buy-and-hold investor and an active trader. But sometimes, there is a sudden move in a stock that goes against you. I’m always playing defense. So it’s critical to use trailing stops to protect gains and principal.
Trailing stops remove the emotion tied to a company or the trade.
I might be in love with a company like Apple Inc. (Nasdaq: AAPL), but a trailing stop is like a good friend who is willing to do the dirty work and break up with the company on your behalf.
So if you make a trade — say a $1 call option on a stock — it’s important to set your risk ahead of time. Are you willing to lose 10%, 20%, 50%? By defining that risk ahead of time, you can save yourself a world of frustration on the other side.
If the stock stops out, I exit my position and wait for the signal trade again.
I don’t like to be emotional about my trades… I’ve learned my lesson the hard way. Instead, I just set my stops and ride the wave. Using these stops allows me to sleep better at night knowing I’m protecting myself and my family’s money.
Enjoy your day,