So...just two weeks ago civilization was going to collapse due to Trade Wars. Remember that? Companies were going to go bankrupt, markets were going to collapse, and farmers were going to starve to death amidst heaps of rotting soybeans. Yet somehow, against overwhelming odds, humanity weathered that storm and survived only to see the next calamity unfold...the devaluation of the Turkish lira.
Obviously I am kidding. I am just venting because I really can't stand how bad the Financial Fake News media is. In reality Friday's selloff has nothing to due with the Turkish Lira just like the action a few weeks ago didn't have anything to do with Trade Wars. It was just normal, regular action. I bet that if you looked at a chart that didn't have dates on it, 95% of the population probably couldn't identify on which day these earth-shaking events happened.
The real reason why the market sold off was because it reached the level that was the all-time high and became overbought. I even said last week that the market SPYs would run into resistance around the $286 level because that is where the recent all-time high was. I don't have the power of foresight and I am certainly no genius. I just made note of the fact that when markets reach levels that were former important highs, they tend to run into resistance. If they are overbought, they typically see some profit-taking. That is what happened here.
I can assure you that institutional traders aren't watching CNBC and yelling "Sell Mortimer Sell! when the devaluation of the Turkish lira is mentioned. The point is that probably 95% of the time market moves are not driven by news. The main things that cause markets to move are underlying trends, the levels of supply and demand that exists at certain price levels, and random noise.
Prices in markets are always doing one of three things. Going up, going own, or staying the same. When they are going up, the forces of demand are overpowering the forces of supply. When they are going down, the forces of supply are overpowering the forces of demand. When prices aren't moving the forces of supply and demand are equal. These trends are fractal in nature, meaning that there are trends within trends of varying time horizons.
And there are certain levels that are more important than others with regards to the amounts of supply and demand that exist at them. There are certain levels where there is so much supply that the forces of demand can't break through them. These are resistance levels. And there are certain levels where there is so much demand that the forces of supply cant break through them. These are support levels. Often times, trends stall or reverse when they reach these levels.
There is also movement that is caused by random noise. For example, say a client of E-Trade needs cash because they need to bail their kid out of jail and they sell $200,000 worth of their mutual fund. Then the traders would need to sell a basket of securities that are in the fund to raise this money.
Now suppose that at the same time a different client makes a successful Meth deal and decides to deposit $100,000 into the same fund. Now the traders literally need to buy a basket of the same stocks that they are selling! (they cannot just transfer the stocks from one account to another. By law all transactions need to go through a broker) This dynamic will cause these stocks to move and it has nothing to do with fundamentals or trade wars or the Turkish lira or what some idiot on CNBC is saying.
The trouble with the media is that when these dynamics occur, they always need to try find some sort of story that is driving it. The media is in the entertainment business and not legitimate journalism anymore. If the market happened to hit a support level and rebounded at the same time that the Turkish Lira plunged, the media would be saying that the market was up because stocks will benefit from a weak Turkish Lira!