News. It's everywhere we turn. From the moment we awake in the morning to the moment we lay our heads down to sleep, there is news swirling around. Clearly news must be important. One might think, given its abundance, that news is more important than money, or love, or family, or even food! A foreigner visiting our land from another planet may well conclude that news is more important than anything on the planet, save possibly oxygen.
It is a wonder scientist have not spent more time studying the phenomenon of news the way they have studied other resources which are essential to human survival. For certainly the evidence suggests that without news, society would come to a grinding stop. Perhaps, were a scientist to study the why of society's news addiction, they would discover that in fact it must have a monetary importance! That's why news is so essential to our everyday life.
While readers of the tabloids certainly would not agree with this conclusion, anyone who watches the financial news networks would see the obvious evidence. After all, that is the reason they exist. To provide the news as it relates to money. And thankfully, there is no lack of essential news to drive the financial markets.
What spurred this rant on the importance of news? Well this morning when I opened my phone to check some stock quotes I noticed a news story connected to the quote. It was from the Wall Street Journal, a trusted name in news, so obviously it must be trustworthy. The headline read: "Apple Shares Down: A Few Possible Explanations".This is the type of thinking which leads the writer of the article to set out to discover just why AAPL was down $9 this morning while the rest of the market was working overtime to recover the previous day's losses.
My view - why AAPL fell this morning. it was time to go down. It's that simple. Have you ever noticed how major news events miraculously occur at major pivot points? How does news manage to time these releases so perfectly? I never cease to be amazed. A stock, or an index, approaches a major pivot area and like clockwork a news report is released just in time to dictate the next direction of the trade. How can news be so timely?
The answer is IT'S NOT. The timeliness of news is related to the psychology of the people investing. Investors, regardless of what they have been told, have an underlying belief that up is good, and down is bad. This belief leads investors to dismiss bullish markets as normal, and look for excuses for bearish markets. Why? In his book The Wave Principle of Human Social Behavior Robert Prechter of Elliott Wave International suggested when markets are down "people feel as if the machine of society is broken, so they seek to explain such changes some way other than by rational human behavior. After all, rational humans would never make markets and the economy go down, right? They would make them go up, forever."Rational human beings? Of course not. It must be something outside of us, something greater - the news! But the facts remain; it is not news which drives the markets. News simply kicks people over the edge by acting as a unifying voice of the herd which was already fee ling one way or the other. I know that statement is pure controversy to traditional thinkers. But if news were the driving force of the market, explain why it is that the month of October turned in the largest single month gain of the year (approx. 14%).Think about it: How often does the United States have riots? Moreover, how often does the United States have riots in multiple parts of the country at the same time? Yet during the month of October that is exactly what the "occupy" movement has been able to pull together. The news in the month of October was full of angry anti-capitalists and anti-government protestors taking over parks, city blocks, government lawns. Heck! By the news reports you'd think these occupiers are multiplying like rabbits! Yet the market roared forward.From coast to coast, New York City to Oakland CA, protestors lined the streets and went toe to toe with law enforcement. Thousands have been arrested across the country. Even benign cities like Nashv ille which usually manage to stay out of the controversy news circuits, found protestors filling the steps to state government buildings - and yes there were some arrests made.But Occupiers are only one of the stories. The international stories of Greece's debt default and Euro Zone troubles are far from recent news stories. This crisis has been building for months, dare I say years. Economists from both sides of the pond have been warning and bringing up the issues for months. Talk shows and news commentator have presented all of these problems many times before. Yet those reports did not create market crisis.In reality the month of October was riddled with negative stories, any one of which could have, and justifiably should have sent the markets tumbling yet the market roared on. Why? Because when the herd of human behavior falls into a deep belief that the buying opportunity exists to make money, the news is suddenly irrelevant - after all, they are "investing on fundame ntals".Then a crisis comes something like the 398 point sell off we saw on Wednesday of this week. Suddenly all of those investors, who ignored the news stories for an entire month, driving the markets to its largest single month gain of the year, instantly realize Europe is falling apart! "Of course, it's Greece! We never saw this coming!"Why do these things keep happening? More importantly, how do they miraculously keep happening at pivot points? The answer is simple: Markets do not move based on news, and not based on fundamentals, but rather, markets move based on human emotion. And human emotion moves in waves, just like every other part of nature.For this reason, Technical Analysis is the only form of market analysis which can truly predict market movements. Sure, we don't specifically know which news story will break when. And technicians don't specifically know exactly what the herd is feeling, but based on solid technical analysis, a well trained analyst can easily determine where those changes in mood will occur, and after confirmation, they can trade those mood swings for great profits.
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