After a lack of direction on the indexes at the beginning of yesterday’s trading, the indexes moved upwards, closing at their best levels in 3 months. Despite the financial media’s extensive coverage of the G7 Summit over the weekend, the prospect of a trade war was practically absent yesterday on Wall Street, simply put, because the market refuses to fall as a result. The idea that President Trump’s insulting his European allies would have a negative influence on the economy, and resultantly, on the market as well, simply lost its grip, and has had no effect of late on the market. The most logical trading plan yesterday would have been to expect weakness after the controversial G7 sessions, something that would seem to be cut and dry. Cause and effect… though that’s not how the market works!
A reaction the likes of “selling the bad news” would be an instinctual response, and when computerized algorithms dominate the trading sphere, that tack simply works no longer. Trading these days is controlled by the second and third tiers, the intelligent question traders are asking themselves is, “How can we capitalize on the simplistic thinking of traders not in the know?!” A second tier approach is so dominant nowadays, to the point where buying corrections is almost a done deal, an unalterable reality. The wisest approach is to buy the bad news, because that’s what smart money traders continue to do. You don’t drop a winner and when a certain dynamic works, you keep on working with it.
The bears have continued making the same mistake when it comes to Trump. They have excellent arguments, perfectly logical in their own right as to why bad news should spur negative market movement, but they’ve ignored the second and third tiers which have engendered an entirely different response to the news. The market has ignored trade-related issues as well as the North Korea threat, not because they’re not important but rather because the way to make money is to focus on price movement and nothing else!
It’s key to understand that price movement is that which is creating financial media headlines and not the opposite. Today, for example, you practically won’t find headlines on the G7 Summit, not because it’s been forgotten but rather, because it can’t provide ample justification for the positive market movement. The way that the financial press creates headlines is by first looking at what the market’s done and then finding reasons to justify its movement – all with the hope that the explanation can be encapsulated in a few headline-ready words!
The market has no interest in all of the events that we’ve been hearing about – to present – in the media. What moves the market more than anything else is the simple fact that the trend is on the upswing, and there’s a lot of fear among investors about being left behind. In the money management world, there’s nothing worse than underperforming the market indexes, or your competitors, and a money manager who doesn’t fully embrace the trend finds himself behind the leading pack. The biggest mistake that a trader can make in the current market is to try to anticipate weakness. It’s not so bad to put together a thesis, but if you act upon it, you need to first get confirmation from price movement. When price movement ultimately changes and we see a price correction, we’ll get clear cut headlines explaining the change in the movement. But until selling the bad news is still not a winning strategy, there’s no reason to be too bearish on the market.
Tuesday: What all of that means is that to say that the market will have a lot to digest today is quite the understatement. The historic meeting between Trump and Kim in Singapore is the salient topic, the two world leaders at these very minutes discussing far-reaching topics such as North Korea’s nuclearization and the sanctions that have been imposed on it. President Trump is expected to make a media announcement at 8:00 N.Y. time, and that will have a significant impact in its own right on the market today.
Another development expected for today is the ruling about a huge merger between AT&T (T) and Time Warner (TWX). The legal decision comes are months of court discussions. The validity of the merger proposal is set to expire on June 21st. The decision is also consequential vis a vis other media M&A activity in coming years, affecting other offers like the intent of Disney (DIS) to buy Fox Media (FOXA) and Comcast (CMCSA). These stocks are expected to be active in today’s trading. On the economic front, the May Consumer Price Index (CPI) will be released at 8:30; it’s expected to register a rise of 0.2%.
Have a great trading day!
Today’s Picks – Day Trading!