Today, as I anticipated in my previous post, stock index futures are rebounding stoutly after rather severely gloomy economic GDP and jobless claims data. If there was any good news today, it was that the news was all in the distant past. I always expect this with stock index futures. I wouldn't be at all surprised if stock futures end up higher today, despite the ornery news.The only current news today -- unemployment claims -- was even worse than the GDP data, but it is completely overshadowed by the GDP data. I suspect the GDP will be discounted by traders in the market. "Oh, that's old news. Things are better now," they'll say. Things are not better now, if unemployment claims are rising and accelerating. Understanding this psychology is helpful, because it allows traders to take advantage of this over-ebullient sentiment and fade the market at the right time.
Personally, I think this is evidence that the market is not always right. It is evidence that the market may be influenced -- shocked -- in the opposite direction when additional news in the futures continues in a dismal and dour direction. The rubber band will eventually snap back in the other direction. The fact that these shocks occur and that prices reverse suddenly is evidence that the market was dead wrong about the state of the economic prospects. They then think, "Oops! I was wrong. I'd better change directions!" Shocks occur in the market when participants learn en mass that the market was wrong. It was moving in the wrong direction. However, my opinion doesn't really matter. All that matters is what the market does. Price action always trumps my opinion. I am genuinely and blissfully irrelevant!
This is one reason why I try to nullify my own biases. I don't try to predict the future of market prices. I try instead to respond to the market. Predicting the markets creates bias that blinds me to what market forces are telling me. That's why I'm content to be blissfully irrelevant. It's more profitable!
This is one reason why I try to nullify my own biases. I don't try to predict the future of market prices. I try instead to respond to the market. Predicting the markets creates bias that blinds me to what market forces are telling me. That's why I'm content to be blissfully irrelevant. It's more profitable!
One of the fascinating aspects of the stock index futures is that they always tend to want to go higher. They are strongly biased to move higher. Personally, I don't care what direction the market moves, whether up or down. Unlike the stocks themselves, I can take either a long or a short position in the futures markets, and it doesn't make any difference which. The stock market requires me to "sell short" the market, and then exit by covering those shorts. There are different effects and ramifications which I won't delve into here. But with the futures markets, buying or selling is treated equally. I buy to go long, and I sell to exit. I sell to go short, and I buy to exit. Easy! Simple! With stocks, it is somewhat different. Again, I am not going to be more detailed than to say that it is different.
Stock price inflation is welcomed and encouraged by our government and society. So is housing inflation. Commodity price inflation isn't. All government interventions within the past year have been designed to create stock and housing price inflation, and to cut off commodity price inflation at the knees.
This bias towards higher stock prices is a fact of the markets. Knowing this fact empowers traders to take advantage of this wonderment and profit from it.
But since I have an inquisitive nature, I want to know why this phenomenon exists. Why do stock markets always have a bias toward moving higher? There may be several reasons why this circumstance exists. I am ruminating on what some of those might be. But I don't have time to ruminate in writing, at least not right now. I'm too busy trading. I'm too busy making a living.
