Okay, so this past semester I took a course, ECON 423 – Financial Markets, with Professor Michael Aguilar. His class really taught me the in’s and out’s of all that is stocks, bonds, what-have-you… He loved to talk for days about real-world applications of his economic theory, so it was only fitting that he had us compete against each other in a virtual stock exchange game. My team finished somewhere in the middle of the pack (partly because we didn’t check our portfolio over spring break – and the markets just so happened to nose-dive), but I learned a great deal about the trading process. I’ve created my own game, where I start out with $1,000,000 at $9.95/trade just this past week, and so far I’ve done pretty well. In just four days of trading, I’m up almost 3%, while only trading ETFs (Exchange-traded funds); these funds are comprised of many different stocks and are usually separated by sectors (financials, basic materials… etc.). Since ETFs are conglomerates of individual companies, they are much less volatile than the any single ticker in the ETF. I’d highly recommend doing this for practice, so that when you’ve got real money to throw around, you’ll actually know what to do with it.
Prof. Aguilar is a big believer in top-down economics, meaning that macro events (such as the Fed changing interest rates, or any trade agreements, etc.) have predictable trickle-down effects in equity and fixed income markets. This is sort of the opposite view of daily traders, who pounce upon micro events (like new products coming out, whatever) as quickly as possible in order to ride the wave of a single company’s stock. I feel like my professor is mostly correct. I say mostly, only because I feel that some sizable companies, like Apple, have substantial impacts on the market as a whole.
So, for the major macroeconomic events this week… In order to combat rising oil prices in these summer months and family road trips for the 4th of July, Obama released 30 million barrels from the strategic oil reserve earlier this week. This was a “smart” move in the sense that it will be popular among the people, but 30 million barrels is just about 2-days worth of oil for Americans. So, for the trades… I had originally held IEZ – an oil equipment ETF which is positively correlated with the price of oil – and once the announcement came out, I immediately sold it and shorted the position, as oil prices fell (At least this is what I intended to do, but in the virtual stock exchange interface, you have to “sell to cover” instead of just selling the same amount of units that you bought – I sure won’t make that mistake again). I then shorted IEZ for two days or so – until I felt the stock bottomed out; I then bought to cover, and reaped the benefits as the price went back up considerably.
In case you didn’t know, the S&P 500 is promising to show its largest weekly gain in a long time. This is partly due to Greece agreeing upon a $38 bln austerity plan that paved the way for the country to get its vital bailout loans. This eased concerns of Greece’s government defaulting, which wouldn’t be good news for anyone. So, I was very bullish all week on the ticker IVV, which is the S&P 500 ETF, since the market had previously dipped on the concerns. I was right. I also made plays on Japan’s ETF, EWJ, and an emerging maket ETF, EEM, by going long on both positions. I did this for the same reason – Greece’s austerity plan.
Misses: I could have made a fortune off of the news that came out just yesterday that the Fed raised the debit swipe fee limit from 12 cents to 21 cents. Immediately after the news came out, Visa, AmEx, and Mastercard all jumped considerably. However, once people realized that the credit card companies were lobbying for something near 34 cents/swipe, shares quickly fell back to a stable price. I wouldn’t consider this that bad of a miss, simply because the timing of the trade would be nearly impossible with the virtual stock exchange, which is delayed 20 minutes.
Now, since I’m going on vacation to Greece [WHAT WHAAT!] next week, I’m going to sell all of my positions so that I won’t get screwed in case the market crashes.