Options Insights Blog

The News Drives Market Action

The title of today’s piece pretty much sums up what we’ve seen this year.  What normally is seen – accumulation, volume trends and patterns – is unmistakably missing.

From the violent revolutions in the Middle East to the tsunami in Japan, the European Crisis to the US debt ceiling mess – we have had our fill of macro events influencing decisions.

In a world of uncertain outcomes investors and traders find safety on the sidelines until issues are resolved.  Today’s trade is as tough as we’ve ever seen.

Sentiment is as bad today as we’ve seen in a few years, and without the government there to backstop failures (well, I sure hope that is not the case again) it’ll take a a great deal of time before the environment clears up.

Trading the news is tricky, but it’s best to avoid the noise and just trade what you see.  Too often we put the cart before the horse in hope of making the right trade.

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In most situations what is needed is a clear head, fresh perspective and no outside influence.  I trade based on the charts and  technical patterns based on years high probability of success.

They don’t always work, but then again what system is perfect?  The news can get loud – deafening to a point – as CNBC and Fox Biz feast on the fear of the public to garner huge ratings.  I often have the mute button on.  My head is clear and fresh to make winning trades.

 

The influence of news causes a chain reaction.  Lately the European Crisis has been front and center as many try and game the final chapter.

I have never seen such a close correlation between stock markets and news as we have today.  It’s as if players are placing bets based on the type of news that will be released – and the magnitude of it.

Big gaps up, big gaps down, 20-30 handle moves on the SPX in the pre-market.  This is no way to invest, no wonder the public has been forced to the sidelines.

Unfortunately, investing and trading in the stock market has become a gaming exercise.  News flow is disseminated at hyperspeed in the internet and smartphone world.  We react and make our moves just as quickly.

It’s time to slow down – because we all know what happens when we travel too fast – accidents happen.

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