Fake News...

The financial media can be amazingly annoying, and even more importantly amazingly wrong.  All day today I heard 'Market lower due to Trade War with China", '"Trade War rattles markets, 'Trade War this, Trade War that' BLAH BLAH BLAH....  Even as I write this three hours after the market closedthey are still going on and on...

But...ah...no.  The market sold off because last week it ran into a resistance level and became overbought.  These dynamics lead the forces of supply to overcome the forces of demand.  IT HAS NOTHING TO DUE WITH A TRADE WAR WITH CHINA!  IF THE MARKET WAS OVERSOLD AND BOUNCED OFF OF SUPPORT THEN THE FAKE NEWS FINANCIAL MEDIA WOULD SAY THAT THE MARKET WAS RISING DUE TO HOW A TRADE WAR WITH CHINA WOULD BENEFIT THE UNITIED STATES!

I even said last week that the market would probably see some profit-taking this week because it was overbought and at resistance.  Pretty simple.  I don't have ESP and I am not a Market Guru and I had no idea that there would be talks of a 'trade war' this week..  I just saw some very simple supply and demand dynamics occurring.

Here's the thing...probably 90% of the time, the market is moving in certain ways because of:..

  1. The underlying trends that are occurring,  These trends are of varying time lengths and are fractal by nature.  
  2. The supply and demand dynamics that exist at certain levels.  Certain levels are more important than others.
  3. Random noise created by order flow.  

It's typically not because of things like trade wars, politics, macroeconomic news, or because of someone somewhere saying something.  Media commentators need to fill blank space and people who don't understand the markets think that there always needs to be some magical and concrete explanation for why the market is moving.  But that isn't how it works.

There is a lot of noise created by random order flow.  For example, consider this.  Suppose Joe Six-Pack needs to raise some money.  Maybe his kid is getting married, going off to college, or needs to be bailed out of jail.  So he puts in an order with his mutual fund company to sell $10,000 worth of his fund.  Now the traders at this mutual fund need to sell a basket of the stocks that are in the fund in order to raise the cash for Joe.. 

In addition, there may be other people who are putting money into the fund.  Now those traders at the mutual fund company  literally need to buy the same stocks that they are selling!  This type of buying and selling activity creates order flow which in turn creates noise and random market movements.  It has nothing to due with the fundamentals of the companies involved, nothing to due with movements in the Turkish Lira or a Trade War with China, and nothing to do what some idiot on CNBC is saying,

And when markets become overbought or oversold, meaning that they are trading outside of their normal ranges (typically defined by how many standard deviations they are trading away from a moving average) and run into levels where demand starts to overwhelm supply, or vice versa, they tend to make meaningful moves.

Bottom line...if you want to be successful worry about making money and not being entertained.  Shut the TV off, and try to identify the relevant trends and important levels that will influence the way your stocks are moving.  This will help you to make much more logical buy and sell decisions than you will get by listening to the Fake News Financial Media..