Perception-Why It Matters
PPI tutorial
Good morning everyone, hope you are all having an excellent start to your day, make sure you get those steps in today, we all need to do our part to stay physically healthy! Ok we had the PPI report this am and it has the markets in sort of a pickle after rising 0.9% MoM when it was expected at 0.2% and PPI YoY is now 3.3%. We do not care what these numbers state honestly, can we even trust them. Furthermore more than half this jump is attributed to wholesalers keeping their margins high.
Here we can explain it this way:
The Producer Price Index (PPI) measures price changes at the wholesale level before goods and services reach consumers. In the latest report, the overall month over month increase in PPI was driven significantly (more than half) by a 2.0% jump in "margins for final demand trade services."
Breaking this down simply:
What are these margins? They represent the markups or profits that wholesalers (who buy in bulk from producers and sell to retailers) and retailers (who sell directly to buyers like you) add to the cost of goods. The "trade services" part focuses on the distribution and selling process, not the raw cost of making the product itself. So, this isn't about higher costs for materials or labor -it's about wholesalers and retailers deciding to widen their profit margins on what they sell.
Who is adding to the increase? Primarily wholesalers and retailers. They're the ones boosting their margins, which pushes up the overall wholesale price level captured in PPI.
Does the consumer see this increase? Yes, typically consumers do feel it. Higher margins at the wholesale/retail level often get passed on as higher retail prices in stores or online. However, it's not always immediate or one to one, actors like competition, demand, or promotions can soften or delay the impact. Over time, though, sustained margin increases contribute to inflation that shows up in what you pay.
It is also safe to say that if the economy is souring or slowing, then we would expect the consumers not to pay higher prices but opt for alternatives that are cheaper instead. In economics we call this the “substitution effect.” As we have noted once NFPayrolls starts to go negative, the FOMC will continue to press rates lower, we should suspect an accelerated deflationary regime at that point.
Alright now let’s get to our lesson on PERCEPTION and why it matters. We will use the Monero XMR chart to prove how perception not only changes in real time, quite often it succumbs to emotion, both positive and negative. Emotions are always the enemy when it comes to prudent sound decision making and in trading, nothing is more detrimental! So look at this chart here and if one was long or looking to buy Monero, they would certainly welcome this chart structure. The setup for the long was buying under $200, buying more up to $240 and then waiting for the breakout if it occurs, when it occurs a good trader will piece out percentage wise and or if they are longer term in nature acquire more and raise their dollar cost average price. Nonetheless the feeling of EUPHORIA on this breakout would dominant:
Now onto the next chart, the continuation, boom for the $200 or less previous longs, you are now at a 2x winner, short term traders would have most certainly exited all longs, maxis would have added more and maybe shed a few up here at 2x, but none the less these are big winners for any of the early longs and the emotions are in a state of BLISS:
So we are in a positive emotional state, but that is about to change. Look now sellers emerge, market sentiment turns bearish and our prior significant resistance point is about to be broken below on the downside at $295. If you are still long here then you are part of the MAXI TYPE LONG TERMER. Short term traders would be stupid to be long after that hype and rejection. The biggest mistake I have seen is buyers don’t buy enough on the way up, but opt to buy and add on the way down, that is about the WORST TRADING DECISION one can make. In the trading world we call those traders cannonballers, and I have personally seen many of them come and go:
Now the market breaks $295 and it moves lower to test the original $240 breakout area. Now the overall Monero market mood is a negative one, its driven by a 51% attack, calls for Monero to be dead once again arise and NEGATIVITY dominates the theme. Why?
Because everyone is focusing upon where the high was compared to where it is now, rather than focusing upon the bigger picture in relation to where Monero actually started from during this whole breakout move:
So what we end up with through time are quite strikingly two very different emotions, but one same singular price level:
We suppose this is why trading is more of an art form than it is anything actually concrete. Concrete is to definitive and markets price action is far to dynamic to use such a term. Ai is changing a lot of the way traditional traders have viewed and executed things, but don’t think for one minute this removes the non linearity, it most certainly does not. In fact what Ai will lead to is a very highly concentrated and more bifurcated system by which there will be a very few winners and many many losers. We don’t often see that talked about, rather all we see is the positive emotion side of Ai and its human assistance capabilities. We however take a much more broader contextual approach and understand that trying to compartmentalize chaotic systems often leads to the rubber band effect. We stretch and stretch in one direction but forget about the potential kinetic energy of a snapback. We see this complacency all over financial markets, from the concentration in the big caps to the massive amount of money being deployed in the new digital asset industry.
If we don’t watch it, we might not be ready for a future that doesn’t come out as rosy and intended as once was thought. History is full of these time periods and all we can do as traders and investors is try to not get caught in the emotions of it all but rather survive by what Darwin called the most adequate of all organic attributes, adaptation!
Ok guys till next time.
We appreciate all the support and thank you for reading our work and hopefully your gaining valuable insight and improving your own techniques and improving your non linear thought processes.
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