I wanted to post this piece here from an oil rig count discussion in the energy section - specifically, my thoughts about using fundamental data without supporting price confirmation.
" As a speculator (important caveat) I would not recommend to "time" the market - and to me, "timing" the market means to take a position based upon anticipation without supporting price action. In other words, the market timer believes himself to be smarter than the collective wisdom of the remainder of the market. ( It has cost me plenty to get my ego shredded to this point of humility ) There is no way that I have the commercial production information that Valero or Royal Dutch Shell or XXX has. Do I believe that the present state of forward curve contango in the crude market is everlasting ? No way. There will most certainly come a point in time where the forward curve regresses back to a backwardation state. But to me personally, and my recommendation to clients is; it makes no sense to time that now without supporting price action and almost assuredly sit with it and twist in the wind. Many clients don't have the anxiety and emotional reserves or quite frankly the capital reserves to sit with a non-performing trade for what could possibly be (and who really knows) an extended period of time. Even if there might be, from a historical perspective, limited downside in terms of further contango in the forward curve.
So, for me personally, it boils down to this - a good "timer" might be able to take, let's say, 150 tics out of a trade. For me and for what I teach clients is that it makes more sense to use our model and our rules set to take less of the trading range than "perfect timing" knowing that we have some juice going along for the ride.
I trade and teach other intramarket forward curves the same way. This is just my way, and it works fine for myself and the vast majority of my clients based upon feedback.
Having said that, I'm sure that there are many other successful ways to trade the forward curve - and even to 'read the tea leaves' in terms of economics and fundamental supply and demand.
I personally made a choice several years ago to diversify my trading into as many electronically available markets as possible, and for me that meant using a price-based trading model and rules set. I feel comfortable with that because of, and not in spite of, already having traded energy commercially and for a fund.
Again, this is just my own approach. There are many other good ones. Another significant driver to my approach is the reality that I cannot blow up clients nor can I assume that my clients have access to and can correctly interpret different fundamental data flows across a myriad of markets.
Do fundamentals move forward curves ? Oh hell yes. Are forward curve moves reflected in price ? Always."
