August 17th, 2014 | Tags:

“News Trumps the Chart”

That’s a saying I suppose. I’ve said it quite a few times and I know I didn’t make it up.

But anyway, the current earnings season has been a good confirmation that saying is true. I’ve seen plenty of stocks with constructive charts get hammered after the earnings release. And I’ve seen lots of cases where the chart looked terrible going into earnings and the stock gapped up significantly.

“Earnings roulette” is a dangerous game to play because you never know how a stock will react. We’ve all seen stocks release earnings after the bell and for a few minutes it pops up big, then an hour later, or by the open the next day, it’s down huge. And the other way around.

Binary events are a crapshoot at best.

 

“News trumps the chart” also applies to the overall market as we saw Friday.

Everything was going along just fine then all of a sudden a headline at 10:45 about fighting in Ukraine caused the market to start falling – fast and hard. The SPX fell about 20 points from the news to the low of the day around noon but eventually managed to work it’s way about half-way back up into the days range.

It’s interesting how it happened on options expiration day though…

And of course the “tone” on CNBC immediately  turned negative and I even saw a graphic on the screen “Crisis in Ukraine”. On Fast Money it was “Russia Rocks Stocks”

It really got me thinking about how much these headlines and Breaking News stories really affect the market.

We know the market reacts to “shock value” news immediately these days but I’m fairly certain that over a longer period of time “breaking news” today has nothing to do with where the market ends up.

All this “breaking news” drama seems almost like a joke at this point…

“The market fell sharply today as investors were spooked over rising tensions in Ukraine”

“The market rose today as tensions in Ukraine eased and investors scooped up bargains”

I made those up in 5 seconds, so I could probably write for Reuters.

August 5th

August 14th

Remember when it was Egypt or Syria or Libya or somewhere else in Middle East? Remember the fake AP Tweet?

 

“Stocks were down sharply today as nervous investors feared the Fed might hike interest rates sooner than expected”

(I just made that up)

This was the headline July 31st, a couple weeks ago when the DOW dropped over 300 points.

It’s almost like some sort of a game where the market moves and the media has to come up with a good reason or a running narrative for why the market moves up and down.

 

Remember last year?

What was the news on the worst day of 2013 when the S&P dropped 2.5% in a single day?

 

Think about how silly that seems now.

Back in 2013 the narrative was”investors worried the Fed might reduce stimulus sooner than expected”. Every time the market had a bad session it was blamed on “the taper”.

 

 

Now, over the past few months the narrative has changed to “investor concerns over when the Fed might raise interest rates”.

It’s all just so twisted…

On the flip-side of the coin, when the market moves up for no apparent reason (like it did Thursday)  Bob Pisani comes out and says “There’s no where else for money to go except into stocks”. Seriously, he said that – several times during the day.

Yes, I will agree that there’s “headline risk” but I will also say that 95% of the headlines that move the market in the short term don’t matter a few weeks or months later.

The media, and especially CNBC love to blow things out of proportion and act like “drama queens” because I guess that’s what “news” is about these days.

As much sensationalism as they can possibly conjure up is the norm.

I know a lot of traders simply “tune it out” and I admire that. It’s honestly probably the best thing to do.

But in the very short term, there is no question that “news trumps the chart”. And going all the way back to the beginning of 2013, every time “stocks fell sharply because nervous investors reacted to the news”, it was a buying opportunity.

That is the one constant.

I’m starting to grow “numb” to the day to day drama. What matters today will be forgotten soon. There will be a new crisis for investors to fret over.

By the way, did they ever get to the bottom of what happened to those Malaysian planes?

 

 

August 9th, 2014 | Tags:

Last week I posted the analog I was seeing between the current price action and the same pattern back in late January.

It almost played out exactly the same with one “very strange” difference.

The “next leg down” may have happened in the overnight /ES futures Thursday.

Oh it definitely did happen, the question is if by virtue of it happening overnight, it completes the pattern and was the capitulation move.

Hard to tell but I can say that it is odd.

Here’s what I see now. (click for full-size).

I think we are going to have to let the market make it’s next move first – kind of like playing chess.

I have an open mind going into the week. There are plenty of indicators that reached oversold levels last week and Friday’s bounce was significant.

But I’m not sure if the capitulation I was looking for “counts in the overnight session”.