In my last publication I talked about how difficult the trading in S&P500 would likely become. The point was that I believed an important top was already in place but I expected the move down to be quite volatile and choppy. So far the market has behaved in that manner. S&P500 first declined to 1357, then rallied sharply to 1415 but failed below the previous top (from late March) and pulled back sharply again. Now it is sitting just abv the April low at 1357. Should it break below there, the focus will be on the 1340 level. And don’t forget,the correction phases usually take more time than the previous upmoves so I expect the pullback that started in late March 2012 top to last at least 4-5 months. So, while my outlook is bearish for the following months, the price action is likely to remain quite choppy with lots of strong rallies along the way. Reffer to my previous publication on how one can trade in such market.
Today, I’d like to talk more about the news impact. As you know I believe the news has no impact on the market price. There may be some initial impact once the news is released, but then the price action has nothing to do with the news interpretation. A typical example is the recent price action in Apple. As you know AAPL topped out in early April near 644 level and declined sharply to 555 when the earnings news was released. The news was extremely positive and the stock gapped up the next day and opened at 615. Soon after the open the stock reached as high as 618 and this level has never been since again since that day (April 25th). Despite the strong rally in the stock market at the end of April, the Apple stock underperformed in the following days. Eventually it brought the entire market down and closed last week at 565 – just a few bucks above its April low. This is a really good example of how one should not react based on the news. Should you have decided to bought AAPL after the earnings news (i.e. at 615) you wouldn’t have seen the prices ahead of you. As we have discussed many times, usually the excellent stock news are sold-off to the public that is buying the stock and guess who is selling – the smart money who have bought the stock much earlier. I learned that lesson long ago and decided never to base my decision on the companies’ news. You may make other mistakes, but this one should not be made. Unfortunately many people make this mistake over and over again even if they see clear evidence that this is not a good approach to the market. They just can’t help themselves to participate when there is an excitement on the market after a positive news. Don’t do this mistake!
Alexander
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