Does the news affect the markets?

Written on March 9th, 2018 by James

A communication that I sent out to clients this morning, along with a picture that to me shows the predestined potential market moves ahead:

“Another week, another headline out of DC as the Chief Economic Advisor, Gary Cohn resigned.  Last week it was tariffs, this week a departure, next week it will be something else.

 The market initially gapped down overnight Wednesday on the news of Cohn’s departure but promptly worked its way higher the next day to close relatively flat.  Today (Friday) morning we are gapping higher premarket on good jobs numbers.  (don’t be surprised if we close a little lower today, as we are still in a consolidating sequence in the market)
Why does news sometime matter and sometime not?  The market is made up of humans around the world that trade based on news flows, but the only thing that matters is where the market stands at the daily close.  Sometimes news events will matter but many times it is simply noise for short term traders to try and capitalize on.
There are many in the academic field that will try and tell you markets are “efficient” meaning that they price in all known and unknown information and that no one has an edge.  However, any time you have something controlled by human beings, there is no possibility of it being fully efficient.  There are to many opinions, biases and emotions at play for the market to fully price in everything.  That is the reason we get gap downs and gap ups on various news flow.  At the end of the day it isn’t the news that matters, it is the markets reaction to the news that matters.
I’ve been at this long enough to learn to be skeptical of the news, yes I see the headlines but instead of letting it steer my biases, I simply want to see what the markets reaction to it is.
Eventually the news cycle will turn, and it may have a negative affect on the market that lasts for more than 24 hours.  However, it will be more than a White House news story.  It has to be something substantial that affects liquidity, employment or economic activity.  Interest rates, inflation and trade are the ones that come to mind.  When I start to see headlines about those items is when I know to pay closer attention to news flow.”
Market update:
If the market is consolidating as shown below and hits point E and holds early next week, the odds favor a strong move higher into the end of the quarter or early April(north of 2900).  There is still a chance that the consolidation breaks the other way (down) so that bottom trend line is very important support.  We don’t want to see the S&P drop below 2680 – 2700 or a swoosh lower to 2400 is in the cards.  Triangles are generally penultimate patterns suggesting that if we move higher it will be an ending run for awhile:
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