Unbelievable. For the last two week all we heard from the Fake News Financial Media was Blah Blah Blah....trade war this, trade war that, market down due to trade wars, market up due to trade war tensions Blah Blah Blah Blah!!! And as I pointed out in my earlier post, this was all Fake News. The market was barely moving and the Media was completely wrong in acting like it was Black Friday in 1929. So today something that was important in the markets happened and nobody that I saw in the Fake News Financial Media so much as even mentioned it!
I spent 20 years as an institutional trader, and in that time I learned a few things. And one of the things that I leaned is that most of the time when markets move, and I'm talking like 95% of the time, it is not due to macro news or what some 'Guru' in the media is talking about. It is typically due to how markets react to the various amounts of supply and demand that exist at different levels, the underlying trends that are occurring, and what I would call random noise. I can assure you that there aren't hedge fund traders who watch CNBC and start screaming "SELL SELL SELL" or "BUY BUY BUY" based on what Cramer is yelling about.
First, let's consider random noise. Assume that a Hedge Fund has a client call them and say that they are withdrawing $10 million. The traders at this fund will need to sell a basket of stocks out of this client's account in order to raise this money. Now suppose that on the same day a different client calls in and says that they are depositing $20 million into their account. Now the traders need to use this money to buy a basket of stocks to get the account fully invested. So the traders are literally buying the same stocks that they are selling! They have to do this because all trades need to go through an exchange. It is illegal to move the stocks from the sellers account and put them in the buyers account.
These dynamics will make these stocks move and it has nothing to do with trade wars or what they are saying on CNBC or underlying fundamentals of the stocks involved. Now consider that this is happening tens, if not hundreds of thousands of times every day across Wall Street and you can see how this typical daily activity that occurs in Hedge Funds and Mutual Funds moves markets.
The next thing to consider in analyzing why a market moves is the underlying trends that are occurring, which are of varying time frames and are fractal in nature, and the amount of supply and demand that exists at various levels in the markets. There are clearly levels that are more important than others with regards to the amount of supply and demand that exists at them. If a market is in an uptrend and runs into an important supply or resistance level the trend will typically revert or spend some time consolidating because it continues. The opposite is true if a downtrend runs into a demand or support level.
The problem with the Media is that they need to try to find a reason for every move because they are not in the Journalism Business, They are in the Entertainment Business. If the market is oversold and bounces off of a support level they would say 'market up due to trade wars'. If it is overbought and sells off of an important resistance level they would say 'market down due to trade wars.' But in reality moves typically have nothing to due with the news story De Jour.
In addition to this, it is important to understand that there are important days in the market with regards to its action, and there are unimportant days. Most days are unimportant meaning that the action is innocuous and unimportant. They vastly out number the amount of days that are important. Important days are days when things like important support or resistance levels are broken or reverted from, when trends are broken, or reversal days off of important levels. Today was an important day and that brings us to my initial question...where the heck was the Fake News Financial Media?
Today was an important day because the SPYs made a meaningful move above the $280 level and had their highest close since January. They have reached this level three times since then and each time they reverted. Today was an important day because the market closed above an important resistance level! And no one that I saw in the media reported it. I watched Fox Business News and Bloomberg, which are tolerable sometimes, and I even made myself watch CNBC which to me causes about the same pain as having sand in my contact lenses, and I didn't hear a single mention of this important action. If the market holds and consolidates above this important $280 level over the next week or so, it will most likely be the first indication that it is going higher.