More on News Impact

The S&P500 market is called to open near the 1340 key support level. This level was major support in early March and then it provided support a few times last week. But the daily and hourly charts look quite negative now, so it appears the 1340 level will soon give way. Add to the negative chart of S&P500 the fact that Nasdaq 100 is leading on the way lower and that the emerging markets are even weaker. So, the odds do favor a breakdown here. Should this level give way, I would expect a panic sell-off. Why? Because many institutional buyers (mainly hedge funds) may decide to exit all at once. This can quickly bring losses twd 1300 and slightly below. If the bulls manage to somehow save the 1340 level, we may see a reaction rally back twd 1378, but eventually I believe the market will break the 1340 level.

If you remember last week I talked about the news impact using the Apple example. The Apple good earnings was a good example how the market would use a news-driven rally to sell-off. Last week there was another worth noting example: the Cisco Systems (CSCO) news. I encourage you to take a look a the CSCO daily chart. You will see that prior to last week there was a textbook Head and Shoulders’ pattern that had developed for the past 3-4 months. This topping pattern was broken on the downside, i.e. CSCO was already in downtrend. And then on Tuesday the CSCO CEO came out and said he didn’t like the trends he was seeing in the way his customers spent. That scared the shareholders and the stock declined sharply.In this case, the company’s news simply confirmed the new trend that had just started.

Best to your trading,

Alexander

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News Impact

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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Disclaimer: The services provided by Trend Recognition Ltd are intended for informational and educational purposes only. At no time will Trend Recognition make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. The service is not a recommendation to buy or sell securities or an offer to buy or sell securities. The publishers of Trend Recognition website are not brokers or registered investment advisors and are not acting in any way to influence the purchase or sale of any security and/or its derivatives. You should not rely solely on the information provided on this site in trading. See the full disclaimer here.