Once you're committed to the notion that "news drives stock trends," news days like this one can impose a thorny choice. To wit:
Two of the world's largest banks (UBS, Deutsche Bank) this morning announced subprime related losses that together totaled some $23 billion. Yet the stock market shot higher at the open and never looked back, in a rally that exceeded 3%. Now to state the obvious:
As the major stock indexes lost 20% or more in the declines since October, the subprime debacle served as the media's villain of choice to explain "why." But today -- as the announcement of massive subprime losses put the story front & center once again -- the Dow Industrials rocketed to a gain of nearly 400 points.
And how did the media handle the "thorny" choice? In a word, shamelessly. From The New York Times:
Shares Surge on Bank Write-Downs
Logic and a heap of recent history be damned -- or, perhaps, it's the vain fondness for consistency which unleashed the hobgoblins into my little mind. "News" Flash: Bearish news isn't bearish if the stock market goes up. If you and I don't know the difference beforehand, well, too bad. It must be our fault.
Enough of all that, dear reader. Anyone can say anything AFTER the facts are on the record.
It may SEEM like longer than two weeks, but that's how recently the news broke about the implosion and bailout of Bear Stearns. In the time since, have you heard or read any conventional sources claiming beforehand that a large rally could erupt on the same day as the announcement of $23 billion in subprime losses?
Of course you haven't -- nor will you, at least not from "conventional sources." On the other hand, if you know that news is IRRELEVANT to the major trend, then you'd ignore the "bad news" and let the market speak for itself. For example:
"The important point tonight is that the market has gone down as far as it is going for now...So one needs to re-orient their thinking for the coming weeks to the new potentials."
That's from The Short Term Update on March 24 -- and the forecast was NOT "because" or "in spite of" the news headlines. That analysis flowed from the only factors that really matter, namely what the market itself was saying. And while the STU's outlook speaks clearly enough to the near term, the even more important question is this: Is the near-term price action moving with or against the trend at one larger degree?
The Short Term Update speaks directly to that query; and, the monthly Elliott Wave Financial Forecast offers an even more complete reply, via the longer term charts and analysis of market history. Both publications (and Bob Prechter's Elliott Wave Theorist) come with a subscription to the Financial Forecast Service. Follow the steps below to learn more.