Aug 21

CMU: How to trade the news in our current environment

By Jani Ziedins | Free CMU

Cracked.Market University

How the news affects the stock market is one of the biggest enigmas in trading. Intuitively, bad news should make stock prices go down and good news makes them go up. Unfortunately, it is rarely that simple. This often contradictory puzzle of news and the stock market is the number one reason people claim “the market is rigged”.

While news is important to the stock market, the thing most people forget is news by itself doesn’t move prices, only traders buying and selling can do that. If we take this concept to the next level, it isn’t news driving market moves, but traders’ reaction to the news that matters.

Why this distinction is so important is because all traders come to the market with expectations. Expectations and beliefs about what will happen next. That means it isn’t whether the news is good or bad, but if the news is better or worse than the crowd expects. This is where the confusing paradox of “good news is bad” and “bad news is good” comes from.

Traders often correctly anticipate a piece of news and they trade the market ahead of it. And when their intuition proves right, rather than make money, the trader gets hit with a stinging loss when the market moves in the opposite direction of what it “should do”. When traders get the news right but lose money is when they start claiming “the market is rigged”. Sound familiar?

The mistake is thinking the market should react to the news. What we really should be focused on is the market’s reaction to the news, not the news itself. This is concept is extremely important in the current environment. Trade wars, Fed interest rates, and hints of a looming recession have may traders running scared. But paradoxically, the stock market remains stubbornly stuck near all-time highs.

If a person was only looking at the headlines, it would be easy to assume the market is well on its way into a bear market. But if we look at the market’s reaction to these headlines, we actually see the opposite. A market that is frustratingly indifferent.

If our goal is to make money, then we should be trading the market, not the news. No matter what we think of these headlines, the only thing that matters is what the market thinks. Keep that in mind when you place your next trade.

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every week.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have profitable analysis like this delivered to your inbox every day during market hours

Follow Jani on Twitter

Tags: CMU S&P 500 Nasdaq $SPY $QQQ $study

Aug 20

Putting today’s selloff in perspective

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 stumbled Tuesday, shedding 0.8%, but this selling shouldn’t come as a surprise. August has been a volatile month for stocks, and the previous two days of substantial gains left us vulnerable to a normal and routine step back. While this 0.8% loss would be significant in calmer times, it is quite a bit smaller than the gains and losses over the last few weeks, and it should be taken in that context. Noteworthy, but not alarming.

More importantly, the S&P500 finds itself near 2,900 support. This is after multiple dips under this psychologically significant level over the last few weeks. Trade tensions flared and recession fears spread over the previous few weeks, causing many investors to shift to a defensive posture. But rather than devolve into a downward spiral of selling, supply dried up under 2,900 and prices bounced. That’s because confident owners remain stubbornly confident. It is hard to trigger a waterfall selloff when so few owners are interested in selling their beloved stocks. When traders stop selling the headlines, they stop mattering. And there is a good chance that is what happened here.

This afternoon’s close pushed prices back to 2,900 support. And while this development is noteworthy and worth our attention, the longer we resist selling off, the less likely it is we will selloff. That’s because market crashes are breathtakingly quick and unravel before most people realize what happened. This “crash” is entering its third week. If this market was fragile and vulnerable, it would have crumbled weeks ago.

If the S&P 500 tumbles under 2,900 support over the next few days, we have to adopt a defensive posture, but if prices bounce back above this key level, that is our buy signal. We trade the market, not the headlines. No matter what we think is going on around us, the only opinion that matters is the market’s.

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every week.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have profitable analysis like this delivered to your inbox every day during market hours

Follow Jani on Twitter

Tags: S&P 500 Nasdaq $SPY $QQQ

1 … 160 161 162 163 164 … 261