Market On Open, Monday 27 October
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It’s Not News To Larry.
by Alex King, CEO, Cestrian Capital Research, Inc
For those investors yet to step out of the reality distortion field known as conventional thinking, let’s just rehearse why the news isn’t really news. Meaning, why “trading the news” is usually a terrible idea. And the answer lies with the definition of “the news”.
If by this it is meant “a new development which was unexpected by large-account, price-setting investors” then yup, that’s going to move price. A large part of the job of those sat atop the Great Towers Of Finance is to be closely involved with politics and business around the globe, thus to both lessen the number of surprises and to influence outcomes. So when something big happens in politics or business - a trade deal for instance - then there won't be many people at Big Money HQ going, OMG Have You Seen This Wait Wut? Because it is their job to be in the room at all times.
If however by “the news” it is meant whatever CNBC or the Wall Street Journal or the FT or whomever decides to lead with on a Sunday evening or Monday morning, then yes that is going to surprise many of the consumers of these products, because said consumers were very much not in the room, nor the ante-room, nor the pre-ante-room nor even the corridor. News appearing in the media can therefore affect price briefly; a run up as latecomers buy, a drop as those who are en retard sell.
But this first move isn’t the real move; it’s usually not the high volume move. The high volume move either already happened (when the Event in question was becoming the most likely outcome) or it will happen once the hoi polloi are done satisfying their limbic buybuybuy or sellsellsell reaction function.
You see this with all market dislocations; big Fed or data announcements, major policy shifts, significant trade deals being signed.
To invest alongside those large-account price-setters is not so hard. For now, most of their trades can be seen in stock charts; each price tick can be hard to read, but a time-series volume analysis usually makes things clear. High volume of trading in a rangebound sideways pattern at the lows? Likely accumulation - buying - in anticipation of Something Wonderful happening. High volume sideways at the highs? Likely distribution - selling in anticipation of Something The Rubes Won’t Like All That Much happening. No volume to speak of in a big price spike up? That’s just the Mom’s Basement crew buying and it can be ignored or traded against. No volume at spike lows? That’s Big Larry trying to tempt the Basement Crew into selling, but failing, and that too can be ignored or traded against.
Most things in the market-view mirror are less complicated than they seem. The constant messaging that markets are hard, cannot be understood, cannot be timed, etc, that is untrue and is designed to have you either not try or to hand your money over to one of the Eye of Sauron inhabitants to run it for you, for a goodly chunk of basis points of course.
Every day in these Market On Open notes we try to show how things really are in stocks, bonds, crypto, sectors, bonds, oil, volatility and more. If you can see how things really are - you’re way ahead of (i) Chad and his Mom and oh by the way also (ii) most of the Sauronistas who, it should be said, are on average only slightly more successful than monkeys throwing darts.
If you have a moment and you ever want to know what good looks like, an idol to which you can aspire? Watch this interview with Stanley Druckenmiller.
OK let’s get to it.
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