"And then all of a sudden…"

“It was all good just a week ago.”
– Jay-Z

There we were bickering over Groupon’s valuation and cheering on Apple’s latest earnings call when all of a sudden…

If traders and investors take a single thing away from the events of August 2011, it should be this:

It is not enough to know what the news is, you must also know when the news going to matter.

When markets react “all of a sudden” to news that’s been out there for a long time, there is a tendency for non-market people to throw their hands up and say “You see!  Nobody knows anything!  It’s all a game/joke/casino/farce etc!”  This reaction is understandable.

In Barry Ritholtz‘s Washington Post column this week, he looks at the mystery of why all of a sudden, things we had been aware of for months (years) all seemingly hit the fan at once this week as the Dow dropped 1000 points…

Why have markets suddenly turned so skittish? It is not as if any of the usual suspects have been unknowns. The problems in Europe were well understood; the PIIG countries (Portugal, Italy, Ireland, Greece) are just as insolvent today as they were a week, a month or a year ago. The end of QE2 was not sprung on anyone. The Fed’s liquidity program was scheduled to end June 30, a date markets knew many months ago. And no one on Wall Street really believed Congress would allow the debt ceiling to cause a U.S. default.

All of the above are after-the-fact rationales — excuses for what pundits cannot easily explain.

I know tons of worldly, knowledgeable folks who know everything there is to know about the economic news of the day – and they were murdered this week, just absolutely blown apart.  The reason is that they know What the news is, just not When that news will matter.

Earnings news matters immediately, the reaction time for a given stock can be measured in fractions of a second

Federal Reserve rate policy news matters immediately but also beforehand – there is the kneejerk reaction away from whichever direction the market was headed, then the kneejerk to the kneejerk as the accompanying statement from the FOMC is parsed, think about the crowd watching a tennis match for a reference point.

Economic news, however, is extremely tricky to game.  Sure, markets will move intraday on things like a BLS jobs release or a GDP report, but over the long haul, it is helpful to know whether you’re in a Bad News is Good environment or a Bad News is Bad environment.

In a Bad News is Good environment, the hope is that weak economic data points will mean continued accommodation from central bankers and policy makers.

In a Bad News is Bad environment, negative news begins to be treated as actually being negative – this occurs when the reality dawns on people that everything that can be done is now being done or has already been tried.

But nobody ever waves a flag saying “Okay, bad news will be treated badly from now on!”

We ignored an ominous undercurrent of negative newsflow for more than two years for the most part with only a handful of hiccups.  Europe has sucked forever as has our employment situation and it’s not like our debt pile of $14 trillion just magically appeared overnight.  So the only question is, how would an investor or a trader know that all of a sudden, these horrid ongoing news stories were going to start to matter?

The answer, as always, was in the tape and the technicals.  Jesse Livermore knew this and it took me the better part of 14 years to learn and respect this.

Old school tape-reading is a forgotten art, it is hardly taught by anyone anymore.  My friends Mike and Steve at SMB Capital know more about reading the tape than anyone else I know of, here’s their explanation of this art form:

When you read the tape you can determine whether a stock will go up or down from its present price by looking strictly at the bids, the offers, and the prints. This ability to read the next move in a stock is often absent from your charts, a lagging indicator.

This is basic supply/demand stuff – money flow.  And while it is predominantly useful to the intraday trader, the way a tape reads over a few days can send bigger signals for bigger moves.  I am admittedly, at best, a passable tape reader – I was much better at it in my brokerage days than I am now as a financial advisor as there is a different set of skills I’ve had to focus on these days. Even with my fading abilities in this area, it became apparent for a string of days that the tape had changed; bids were coming in reluctantly if at all during the last week of July and disappearing more quickly than usual.

In addition to tape-reading, a basic understanding of technicals goes a long way.  Our sell call this past Monday was informed by many economic inputs, that morning’s ISM numbers being just the latest in a series of deteriorating data points.  But the chart-wrecking 200-point plus Dow reversal was the straw that broke the camel’s back.  Sell.  The fact that all major indexes were ripping through major, longer-term support lines?  Sell even more.  I’m not a CMT or a Japanese Candlestick fetishist, but this was all right in your face so long as your face wasn’t buried in a piece of sell-side research from Merrill Lynch.

The bottom line is that being smart and informed isn’t enough.  Most of my journalist and analyst friends are brilliant, I am constantly in awe of their recall and their ability to contextualize the constant flow of information.  But having all that knowledge is far different than applying it to make (or save) money in the markets.

The ability to read the tape along with a basic understanding of technicals will help you put all that news and information you have to actual use.

 

 

 

 

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. Belize city hotels commented on Feb 03

    Belize city hotels

    […]Wonderful story, reckoned we could combine several unrelated information, nonetheless really worth taking a look, whoa did a single study about Mid East has got far more problerms too […]

  2. وی پی ان ایفون commented on Feb 03

    رفع ارور 1009

    Really when somebody does not be mindful of afterward its up to other viewers that they will aid, so here it transpires.

  3. Andrew Wright Attorney Maine commented on Feb 04

    Andrew Wright Attorney Maine

    […]Every once in a whilst we choose blogs that we read. Listed beneath would be the most current websites that we pick out […]

  4. Domain Mauritius commented on Feb 04

    Domain Mauritius

    […]Here are some of the websites we suggest for our visitors[…]

  5. وی پی ان ایفون commented on Feb 04

    رفع ارور 1009

    Admiring the determination you place into your blog and in depth information you provide. It’s awesome to appear across a blog each and every as soon as in a whilst that is not the very same previous rehashed data. Great go through! I have bookmarked y…

  6. وی پی ان ایفون commented on Feb 05

    رفع ارور 1009

    Pretty! This has been a truly fantastic report. Many thanks for providing this info.

  7. کولر صنعتی سلولزی commented on Feb 05

    خرید کولر صنعتی

    We totally love your site and discover virtually all of your post’s to be what precisely I’m seeking for. Does a single offer visitor writers to write content for you? I wouldn’t thoughts writing a submit or elaborating on a whole lot of the subjects y…

  8. گوگل adwords commented on Feb 05

    تبلیغات در صفحه اول گوگل

    Howdy just needed to give you a quick heads up and let you know a number of of the images are not loading correctly. I’m not certain why but I think its a linking situation. I’ve experimented with it in two distinct internet browsers and the two presen…

  9. گوگل adwords commented on Feb 06

    تبلیغات در صفحه اول گوگل

    We completely adore your weblog and locate almost all of your post’s to be what specifically I’m seeking for. Does one provide visitor writers to create material for you? I would not mind composing a put up or elaborating on a lot of the subjects you c…

  10. رفع ارور 1009 commented on Feb 06

    رفع ارور 1009

    Hi there colleagues, how is all, and what you desire for to say about this submit, in my view its truly remarkable made for me.

  11. خرید کولر صنعتی commented on Feb 06

    خرید کولر صنعتی

    I know this if off topic but I’m looking into starting up my possess weblog and was curious what all is necessary to get established up? I’m assuming obtaining a weblog like yours would expense a pretty penny? I’m not very world wide web savvy so I’m n…

  12. خرید vpn ایفون commented on Feb 06

    وی پی ن آیفون

    Wonderful story, reckoned we could merge several unrelated knowledge, nonetheless actually truly well worth getting a search, whoa did one particular distinct master about Mid East has got a whole lot much more problerms also

  13. دانلود hotspot shield برای ویندوز 10 commented on Feb 07

    رفع ارور 1009

    Hey, I think your internet site may well be possessing browser compatibility concerns. When I look at your website in Chrome, it appears wonderful but when opening in Internet Explorer, it has some overlapping. I just needed to give you a quick heads u…

  14. تبلیغات گوگل commented on Feb 07

    تبلیغ در گوگل ادوردز

    Great way of describing, and fastidious write-up to get data relating to my presentation matter issue, which i am going to express in faculty.

  15. وی پی ان ایفون commented on Feb 08

    vpn ایفون

    Does your internet site have a speak to website page? I’m obtaining a difficult time finding it but, I’d like to shoot you an e-mail. I have acquired some imaginative tips for your weblog you may well be fascinated in listening to. Either way, excellen…