Market noise is just that – noise. You have heard me repeat this message often, and I’m going to repeat it again: Ignore market noise, or it can derail your trading.
Why? Because pundits, experts, and analysts cannot predict the future. Only the markets can tell you what’s next.
It is important to listen to the markets now more than ever. Between the long bull run and the news, a lot is coming down the pike that could seemingly derail the market action.
Fear is creating market noise
Traders are struggling with the length of this bull market – eight years and counting. The devastating global financial crisis is still fresh in everyone’s mind. We hit all-time highs during a period of great vulnerability, and very few people saw the warning signs. Naturally there is fear of getting hit hard when the market turns.
But this is not 2007.
Yes, the market has exceeded some extreme levels in price action. Yes, August was turbulent (but positive). Yes, we may see corrections in price and time. But this is not a bad situation. Instead, it gives traders a chance to set up for a big end-of-year run.
If you need more reasons to ignore market noise, keep reading.
Fundamentals and technicals are strong
Earnings are strong, and the economic outlook is the best it’s been for years. The economy is growing modestly with little inflation. Productivity is improving, consumer sales are increasing, and banks have started to lend again. Housing is still a drag on the economy (starts were weak in July).
As I mentioned above, the market may be entitled to a rest. Does a down week or month mean we should stick a fork in it? Of course not!
As for sentiment, the numerous geopolitical crises across the globe are worrisome. Unless you use them as an excuse to sell, there is not much to be done. (It’s important to note that markets uses to rebound quickly following news. That seems to have changed now, because when news hits, the market doesn’t blink).
Volatility is still at historic lows. After reaching some negative extremes last month, sentiment has become much more sanguine. The market structure is still healthy, though a bit wobbly, after a few distribution days in August.
We’ll have to see how things shake out the rest of the month. For now, traders are showing some complacency in the face of worry – and when that wall of worry is up, it means we could go higher.
Ignore market noise. Listen to the market action. It will tell you what to do.
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