[firewalker]

"Most people look at the state of the economy and believe that the stock market should mirror the current situation. They believe that a strong economy should correspond with rising stock prices. Unfortunately, the relationship is not that simple. The stock market discounts the future, not the present. It discounted the present 6-12 months ago. [...] In fact, the stock market is one component of the Index of Leading Economic Indicators, the government's main economic forecasting gauge. In other words, the stock market leads the economy, not the other way around."

- Jack Schwager in a book called 'Fundamental Analysis'...

[firewalker]

... regardless of the news.

People often look for the news to tell them what the market is going to do. Good earnings? Ah, market should go up, we buy! Bad news? Damn, let's dump this stock. Although we can never tell with 100% certainty what the initial reaction to the news will be, we can analyze the reaction of price towards technical levels, with complete disregard to what created or caused the move in the first place.

Those who follow stocks, will know that Cisco released it's Q3 report on May 6, around the close of the markets. Let's have a look at what affect it had on the Nasdaq.

Price went straight up from 1995 to 2002.50 and went on to touch 2005, the upper line of a resistance zone from the 2nd of May. Price then reversed and came back to the level it was trading at before. So, what good does it by knowing the news? If anything, the public is sucked into longs but doesn't realize 'the technical picture' on the chart.

There are plenty of these examples each day. I'm not saying there is a news reversal all of the time. On the contrary, price often breaks through S/R on news, because that's the easiest way for the smart money to position themselves. The take advantage of what the public is doing and use the volume provided by weak hands to their advantage. The news is nothing more than an excuse.

[firewalker]

"It is practically impossible for any man or organization to absorb, analyze and digest the many so-called fundamental factors which influence the course of the stock market, and deduce therefrom a conclusion from which the course of prices may be predicted with any fair percentage of success; what is more, it is a fallacy to believe this can be done on that basis. All the elements which have gone to produce the lines on the fundamental charts have already been discounted in the market. "- R.W.

[firewalker]

The problem with news-related trading is that most traders focus on picking trades around these releases because they believe the sudden increase in volatility gives them a better chance of making a quick buck. Unfortunately, they often fail to realize the risk that goes along with it. Too many traders see a sudden burst in price and think "this is it", and they jump in.

The patient trader waits and watches how price reacts, and looks to fade the news. This is not to say that fading the news is a profitable strategy in each occasion. One must look to what price is doing with regard to important technical levels, like support and resistance.

Most of the news has already been factored into the current price of the market. This means that once the news confirms what the market was expecting, the whole anticipation is gone and people take their profits and walk away, thus sending the market lower.

There's one very important observation to be made here. f the market should go lower (very bad news), but it doesn't, it signals important strength. The news in itself doesn't matter, but it's the aggregate position of traders before the news. Experienced traders wait to see what the news tells them before acting.

Often a market will run up minutes or hours before a report, if they are expecting good news. That's why by the time the report is released, price can often fall out of nowhere. This is especially the case when the news confirms what is expected or the numbers are the same as forecasted.

(main sources: Marcel Link, Justin Mamis, John Magee, and my own personal experiences)

[firewalker]

"Many times unexpected news may come out that is the opposite of what the market has been doing. Initially the response is rapid, hard move the other way, but once traders take a deep breath and reevaluate, the market normally will continue in its set trend. I can't count how many times a downtrending stock reports better than expected earnings, has a quick bounce, and then spirals back downward.

The news isn't important here; it is more important to see how the market reacts to it after the initial move. Fundamentals should be believed only as long as the technical signals agree. Too many times a trader will stick with a news story and not let go no matter what the market ends up doing. Opinions mean nothing to the market; the market goes where it wants to, not where you think it should go. If the market shakes off news and continues its trend, a trader should ignore the news and follow the market." - Marcel Link

[firewalker]

Originally Posted by wasp

"A large problem with news releases is the figure is never the whole picture. For an intraday currency trader, I for one do not pay attention to numbers when released because the figure itself is only part of the picture. Many newbies believe if it is X = long and Y = short but it is never that black and white.

How can a home retail trader know the real story and act accordingly. Would a retail trader ever get the release in time in comparison.

Obviously the news affects the price and 99% of the time the end reaction can be foretold to a high degree through technical analysis so from both points of view, for the retail trader, it is better to work purely from the chart IMO."

Originally Posted by chump

I buy Company X as at Y date on the close. The next day the stock goes X dividend and price drops by the requisite amount. The information was not in the chart that it would do that ,it was in knowing that the company was going ex div the next day and you could expect the price to drop.Ergo ,all you needed was not in the chart.

..............

[mister ed]

Welcome Firewalker - interesting stuff!

[brownsfan019]

fire - good stuff, but that's a lot to read in one sitting.

Give us some breathing time, ok?