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How Investors Get Fooled by Financial Headline “Flip-Flops”

Did you see this headline switch within just 17 minutes?

by Bob Stokes
Updated: June 11, 2019

Hard-nosed journalists love to call attention to a politician's "flip-flops."

It goes something like this: "Here's what you said on the campaign trail, but last week, you said just the opposite."

But what if it's the journalists doing the flip-flopping, specifically, financial journalists (although, not necessarily the same journalist)?

Fnancial headline flip-flops occur when the angle on the news is reversed to fit a financial market's changing price action.

Here's an example from June 7, when the latest U.S. jobs figures missed expectations. The source is a well-known financial network:

CNBCNotification

Looking at the top two "breaking news" items, the one from "27m ago" attributed the Dow futures downturn to the weaker-than-expected jobs report. Then, the notification from "10m ago" turned the disappointing jobs report into a positive when the Dow futures turned up!

Yes, in just 17 minutes, the same news was used to justify the market going down, and then up.

Such flip-flops happen more often than most investors realize. The flip-flops are generally not noticed because each market-action explanation seems to make sense at the time it is made.

As you might imagine, the mainstream financial press uses other news besides a jobs report to justify the market's price action. But this next example also involves jobs and a quick change of opinion:

U.S. Stocks Surge as Jobs Report Spurs Optimism on Economy

June 5, 2009; 13:39 GMT (Bloomberg)

Markets Slide on Jobless News

June 5, 2009; 14:31 GMT (UPI)

As you can see, these headlines happen to be from different sources, less than an hour apart.

What you need to know is that EWI's research reveals that, beyond maybe a temporary price spike, the news does not have a lasting causal effect on financial markets in the first place.

If anything, it's just the opposite: The stock market's price action helps to shape the character of the news! In other words, positive headlines generally flow from bull markets, and negative news generally follows bear markets.

That's because the real driver of the stock market is investor psychology, which unfolds in repetitive chart patterns according to the Elliott wave model. This repetition makes the market predictable!

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