Every market is a combination of sentiment , knowledge,rumour and news .The engine runs till there is news flow.It is like a game of Poker where other person is trying to read your hand and bet against you or challenges you to call his bluff.Media plays an important role in in feeding you nonsense all the time.Are they paid to talk crap who knows but that is left to you to believe or not to believe .So sentiment fluctuates depending on the interpretation of this so called tips or information which actually never works with smart people who know what is going on(as ARISTOTLE SAYS majority opinion doesnt make anything true).So the sentiment is powerful mechanism which affects the price of anything.
Now how to interpret it ...may be technicals help but yea it can be manipulated.So how to seperate the noise ? not an easy thing to do.One really needs to have a not so famous indicator which is tried and tested or look for some clues which are weird .For example take gold everyone is bullish.Why it is obvious that gold is a safe haven.But do u buy it now .No you wait and you check at what price it will be a bargain and from there how much can u loose if your wrong and how much you can make if you right.
take a simple example if something is going up withought news one needs to find why it is going up.Coz someone knows somethign that others dont know.not a good idea to go short.But if something is going up with the news time to be alert coz someone is just wanted it to go up and may be making a you a big sukker(Best example was our own private bank which was in News for all the hidden reasons).NEVER follow what is obvious unless is it meaningless momentum position.
Another thing to watch is so called Targets...this is like everyones favourite buy this tgt so much or sell this tgt so much ...one should ask how does one know it will come to that target unless he is a trained person .absolute nonsense .The so called analyst give meaningless targets (one should ask them if they knew the target our they buying).Anyway when declaring a report on a particular stock analyst include a price target.Lot of guys think that if a stock has a target of say 100 and it is trading at 70 it is a bargain and shoudl be bought .WRONG logic.Money is not for free .Whatever analyst say is not gospel to be beileaved .SO next time you see a price target by some stupid analyst dont count on it coz he might be buying it before you and making a big sukker out of you.
Anyway just wanted to start something so i DID .... will write or post something whenever it is possible .
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Posting an article which i read recently
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How to React to the Bad Market News by Michael Swanson |
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One thing that stands out though is a lot of people news items. For instance going into last week I had someone email and ask about the earnings for airline stocks. They wanted to know if they should buy or sell because of the earnings. How to game the news so to speak. This is something I do not do at all. I don't base buying decisions based on news items and certainly not ahead of them. Usually if you react to a news item the news has already been priced in by the market so you are putting yourself way behind the curve. As far as trying to game the news I simply can't predict what an earnings report is going to be or what the economic news is going to be either. All I do is figure out what the trend is and try to ride that trend for as long as possible - and do my best to realize when it changes. If you watch CNBC or read the financial press though you get bombarded by news and opinions. It can prevent you from sticking with the trends by putting unnecessary fear into you. For instance a lot of attention is put on the employment numbers. Going into employment numbers the reporters will say the market is waiting on the numbers and if they are bad it might dump. They say something like that so you get scared to act. Then the news is bad and the market goes up anyway. The important thing is always the trend of the market. Not the news. News can be bad and the market can go up nonetheless. We are through the first big week of earnings reports from corporate American and over half of the companies that have reported so far have missed their earnings estimates. 50 of the 92 companies in the S&P 500 that have reported have missed, while many of these companies have refused to give earnings forecasts for the rest of the year. 56% of the companies that have reported have shown a drop in sales from a year ago. This is the sixth quarter in a row that earnings have shrunk - a run of quarters not seen since 1951. If that news isn't bad for you how about this. On Friday the government is going to release 4th quarter GDP numbers. They are expected to post a decline of 5.2%. That would be the worst quarter for the US economy since 1982. Well with all of this bad news you would think the stock market would be in total collapse, but it isn't. You see the market has already been dropping into all of this bad news. It fell over 10% from its January high in just the space of a few weeks. Last week the S&P 500 held the 800 level and bounced of it on Friday. Earlier this month I had been looking for the market to fall below this level and bottom nears its November lows - but last week's strength suggests that it might be bottoming right here. If that's the case then everyone who has been selling because the news is bad is going to be left behind when the next rally really gets going. It all has to do with the trend of the market. The easiest way to identify a trend is to see if the market is making higher highs and higher lows. If so then you have an uptrend in progress. Now if you have lower highs and lower lows in progress then you have a downtrend going. I talked about this last year in a video I put together about using this type of trend analysis to figure out where to place stop loss orders. |
law of life: "Things are easier to get into than out of."
law of life: "Things are easier to get into than out of."