Oil Futures Down Over 7% Yesterday

In addition to posts related to my own research, I am beginning to pass along links to timely articles that are important in the context of the market or offer some new insights. For each article, I will also include a few of my own brief comments. Here is a link to another interesting MarketWatch article titled "5 big reasons for oil's plunge Monday." The author (Myra P. Saefong) highlights five different reasons for Oil's steep decline yesterday.

I will let you read the original article to find out Saefong's five factors, but it is important to note that the Greece debacle was only one of a confluence of events that created a perfect storm in oil prices.

Not surprisingly, all of Saefon's factors were related to increased supply, decreased demand, or increasing risk premiums. In this environment, the US dollar also performed well, which further contributed to the decline in oil prices.

I should also note that my cumulative relative strength timing indicator suffered its worst decline in months yesterday, so the carnage was not limited to oil prices alone. Market breadth also looks particularly weak and has for some time.

Attempting to understand how and why market prices move is essential, even when trading systematic or algorithmic strategies. When discrete global events (such as the Greek vote) occur (especially with advance notice), it is important to understand the limitations of technical models based on historical price and volatility and adjust your risk levels accordingly.

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Brian Johnson

About Brian Johnson

I have been an investment professional for over 30 years. I worked as a fixed income portfolio manager, personally managing over $13 billion in assets for institutional clients. I was also the President of a financial consulting and software development firm, developing artificial intelligence based forecasting and risk management systems for institutional investment managers. I am now a full-time proprietary trader in options, futures, stocks, and ETFs using both algorithmic and discretionary trading strategies. In addition to my professional investment experience, I designed and taught courses in financial derivatives for both MBA and undergraduate business programs on a part-time basis for a number of years. I have also written four books on options and derivative strategies.

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