Speculation over next-generation smartphones, product launches, sales projections and market share has dominated the discussion. Will Samsung’s new line of phones be able to compete with Apple? Will the new BlackBerry revive its long-suffering parent company? Can Apple deliver a new iPhone that can win back younger customers?

If you’re a tech junkie, these reports can be fun to read. But unfortunately, many novice market watchers use this type of information (and even unconfirmed rumors) to trade stocks. That’s a terrible — and potentially costly — way to play the markets.

Instead of following the tech blogs for news updates, savvy traders should be watching the charts and ignoring the media hype.

Today, I’m going to break down two popular tech stocks, Apple (NASDAQ:AAPL) and BlackBerry (NASDAQ:BBRY). Each chart is sending out important signals — signals that might be contrary to what you might have been reading about each of these companies in the news.

First, let’s check out the newly rebranded BlackBerry:

BlackBerry stock started to perk up back in late September after being trapped in a vicious, multiyear downtrend since 2008. Throughout the fall, the stock offered several solid risk/reward setups on the long side as rumors started swirling around the BlackBerry Z10 and its new, modernized operating system. Unfortunately, as the stock’s momentum increased, so did new reports of BlackBerry’s potential turnaround. New investors swarmed into the stock as the product launch approached…

Of course, this is exactly when the stock started to top out. By early March, BBRY had violated support of its five-month uptrend. Now we’re witnessing the beginnings of an unsuccessful attempt to regain momentum as the stock slips below its 50-day moving average.

Of course, negative analyst notes and reports of soft launch sales are giving investors an excuse to sell today. But the real actionable news was already baked into the chart.

What about Apple?

Here’s a chart from the exact same time period as our BBRY example. But Apple is showing us a completely opposite setup.

You know how this story goes. As Apple fell from its highs, it began to receive more intense scrutiny from analysts and the financial media. Investors started to call into question Apple’s management team, their ability to innovate without Steve Jobs’ influence and the lack of any recent revolutionary product launches.

Momentum investors and latecomers left the stock in droves. The race was on to find the next hot stock in mobile communication devices. So it’s no coincidence that BlackBerry (and plenty of tech gossip) was there to fill the void.

However, now that BlackBerry’s big Z10 launch isn’t exactly wowing the masses, we’re beginning to see new life in AAPL shares. The stock has just recently broken above its 50-day moving average and downtrending resistance. While everyone was paying attention to Samsung and BlackBerry media hype, Apple stock was quietly beginning to repair the damage that has received so much attention over the past six months.

Apple isn’t moving higher because of improving fundamentals or a brand-new iPhone or any of the so-called “catalysts” that market watchers tend to look for. You’re not going to find any tradable information on the tech blogs about this recovery in AAPL shares. All of the information you need is in the charts.

That’s how you cut through the misinformation in a very, very noisy and popular sector. A picture is worth a thousand bucks if you’re trading. Cut through the noise and stick with what works…

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Chart Wars: AAPL vs. BBRY was originally featured in the Tomorrow In Review.

“Now is always the most difficult time to invest.” — Anonymous

Here’s the deal — I need your help…

I’ve already enlisted a group of my Rude Awakening readers to give me their thoughts on the market. Now I want to know what you think.

So tell me…what are you doing with your money as the Dow posts new highs? You don’t need to get too specific — just tell me what your plans are. Are you buying stocks? Bonds? Gold? Or are you a seller?

Or maybe — like a lot of long-term investors — you’re still waiting it out.

Once I get your answers, I’m going to compile them using very unscientific methods — just to get a feel for the mood of the market — albeit using a very small sample size.

Responses so far have been mixed, to say the least. Some investors are ultraconservative. Others are anxious. Many just don’t know what to think…

I understand why this market can paralyze even the clearest thinkers out there.

The trend is clearly higher… but stocks aren’t as cheap as many would like them to be.

Stocks are at a critical inflection point… but a debt crisis stateside and abroad could squash growth.

It’s also easy to paint stocks and Wall Street as the big villains right now. While the Dow has marched higher for four years, your income isn’t growing. Gas prices are high. Europe continues to slowly fall apart at the seams…

But that’s all right. In fact, a lot of very smart people don’t know what to do right now. If I picked 10 expert market analysts and locked them in a room, promising food and water once they reached a consensus on this market, they’d all be dead within a week…

In fact, conflicting signals from economic data, analysts and fund managers are what prompted me to conduct this informal survey.

I received a reader email about a couple of surveys on Yahoo Finance…

“One was last week as the Dow was knocking on the all-time-high door,” she wrote. “It was something like: With the market near all-time highs, what are you doing with your money?

“42% of the responses were ‘I’m still waiting to get in.’

“The other survey was maybe a month ago, with very similar results: 41% of responses were ‘Still waiting to get in’…”

What it boils down to is this: Who’s watching and waiting? And what are their reasons? Yes, a lot of new money rushed into stocks to start the year. But that’s nothing compared with the $250 billion investors pulled from stock funds since early 2009.

Most people don’t trust this market — as evidenced by all these surveys you’re seeing. And my guess is that a majority of armchair investors won’t become comfortable buyers until their more adventurous neighbors start making money in the markets again.

Despite the fact that this bull cycle we’re experiencing is now four years old, we can still safely say few believe in stocks right now. The past 13 years of bubbles and crises continue to weigh on everyone’s mind.

So what do you think? Are you safely navigating this market? Or, in your opinion, are we in a “not safe for trading” environment?

Tell me here: trendplaybook@agorafinancial.com

I’ll report back to you with the results soon…

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What’s Your Dow 14,400 Strategy? was originally featured in the Tomorrow In Review.

The Dow hit new highs last week. New all-time highs, at that…

There’s been plenty of fanfare surrounding the milestone. That’s understandable. It has been a pitiful 13 years for the stock market. Two major busts — one dot-com, one financial crisis (in case you’re keeping score) — and a ton of additional bear market problems to go along with them. To top it all off, most investors have completely missed out on the current bull market cycle that began after stocks bottomed in 2009.

They were just too scared to jump in.

But what should you do now that Dow 14,425 is a reality? How can you play the market now that it’s broken free into uncharted territory?

Today, I’ll show you how to sort through the sentiment picture as the market attempts to break free of the secular bear. Once you figure out how to read and react to investor attitudes and analyst predictions, you will know when it’s safe to buy — and when you should get out of the market’s way…

First, it’s important to understand just how much people hate this stock market rally right now. Very few investors are believers. They see this move higher as another top — not a new bull market in the making.

That type of attitude makes sense given the environment. A dark cloud is hanging over the market, magnified by countless predictions of a major correction. This morning, I quickly typed up a cheat sheet summarizing all of the big market predictions over the past four years. Here’s what I came up with:

2009: The market continues to head sharply lower. But this is only the beginning. Even after a huge decline, stocks are set to move lower — much lower. Stay clear of this market. The only thing you’ll end up buying is pain and suffering

2010: OK, the past year and half has been fun. But it’s nothing more than a bear market rally. Stocks will drop double digits before the end of the year.

2011: Forget everything you’ve heard since the financial crisis. THIS is where things start to get ugly. The eurozone crisis is only the beginning of a downturn that will turn out much worse than what you saw in 2008.

2012: OK, so we didn’t get a correction this year. But it’s coming. All this political turmoil will sour the stock market for sure.

That’s what’s weighing on investors’ attitudes…

But you know how this all played out. Fast-forward to present day. The Dow hits new highs and the S&P is just few ticks below its record, yet the predictions haven’t changed. The fiscal cliff was supposed to cave stocks — as was the sequester. Yet here we are…

Naturally, this negative sentiment has a trickle-down effect on the investing public. This leads to interesting disconnects. For instance, every time bearish sentiment sneaks higher, new stock market rallies begin to unfold. That’s a positive. You want the market to climb the wall of worry.

This should be your first priority every week before you begin thinking about trades. Take an informal poll of the market pundits. Read interesting articles on the financial sites. What’s the tone of the coverage? Are most analysts screaming that the market is a buy? Or are they cautiously telling the audience that the markets might not be as friendly as they appear?

You can also take into account where investors are putting their money. We’ve seen strong inflows into stock funds to start the year — but it’s hardly enough to make up for the billions investors pulled out of stocks since 2008.

I’ve talked about the idea of the “great rotation” in this space before — the idea that investors will slowly begin to move from bonds back into stocks to spark the next bull market. Obviously, if this is happening, we are in the very earliest stages. You can’t expect everyone to jump back into the market at once. That wouldn’t make for a very healthy, sustainable rally…

Here’s where we stand as of today:

Investors still worried/waiting for the other shoe to drop? Check.

Overall, market predictions are overwhelmingly cautious and bearish? Check.

It’s easy to see how early we are in the process of developing bull market sentiment. These important clues tell us we’ll have a way to go before anything remotely resembling a buying climax occurs.

On the flip side, your sell signals will look very different from what we’re seeing today. Overwhelmingly positive market news will take center stage. Prognosticators will cheer on the rally with more and more impressive price targets. And finally, average investors will buy stocks without hesitation. In their eyes, stocks can’t lose — and they will buy them at any price.

We’re not there yet. Just know that when weather begins to look a little too perfect, it will be time to sell before the storm quickly rolls in…

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Planning Your “New Highs” Trading Strategy was originally featured in the Tomorrow In Review.

No matter how good certain data look, you can’t bank on the past to predict how prices will react with perfect certainty.

But what if I told you there was a 100% chance the market would finish out 2013 in positive territory? I hope you’d call me a liar. After all, there’s no way I could make that kind of promise. No one can.

However, I did stumble onto some very interesting data that have been perfect in their predictions since 1945. And they tell an interesting story about what could be in store for the market later this year.

More on that in a minute…

First, let’s take a look at how the market has reacted to a pretty substantial amount of news and interference over the past two weeks.
After a quick, nasty drop, stocks are percolating once again in the face of some nasty news. Italy and the entire eurozone continue to move closer to complete financial annihilation. And our now sequestered government continues to bicker over a few crummy budget cuts.

So there’s the bad…

But there was also some good mixed in. Last week, we saw some very upbeat housing data. GDP revisions weren’t terrible — and the market didn’t even seem to take notice. There aren’t a lot of data on tap this week, so the biggest curveball moving forward in the short term is likely headline risk related to Italy or sequestration.

Still, there’s a ton of new fear injected into the markets. One look at the most recent American Association of Individual Investors sentiment survey shows that bullish sentiment dropped more than 13 points last week.

This brings us back to our curious market pattern. The data are courtesy of Sam Stovall of S&P Capital IQ. Stovall just issued a report that shows there have been 26 instances since 1945 where the S&P 500 posted gains in both January and February. (February is usually a weak month for stocks. In fact, the S&P barely squeaked out gains to end the month this year.)

According to CNBC:

“In all 26 instances, Stovall says, the ‘500’ recorded a positive calendar year total return, averaging an advance — including dividends — of 24% and posting full-year results that were in the single digits just twice: 1987 and 2011.”

Those are spectacular results.

Does it mean that the market is guaranteed to finish the year with impressive gains, since the first two months ended in the green? Absolutely not. Even though we haven’t seen a miss in nearly 70 years, there’s no way to say with certainty that stocks will finish the year with gains — much less with gains as high as 24%.

Even if we take away any sort of guarantee, there’s still reason to be optimistic. Historically, the first two months of the year aren’t particularly strong together. That’s something significant. So even if we do get some form of an extended pullback this spring or even later in the summer, we can point to strength earlier in the year as a confidence boost going forward.

After all, when the market starts the year off on the right foot, it tends to follow through…

Best,
Greg Guenthner, CMT

A 100% Gains Guarantee? was originally featured in the Tomorrow In Review.

As you already know, the Dow isn’t our preferred market gauge. Instead, we like to look at the S&P 500 when we need an idea as to how the broad market is acting. But the Dow still retains an important emotional connection with anyone who has ever looked at a stock. After all, the 30 household names in the Dow resonate with everyone: Coca-Cola, Wal-Mart, Microsoft, Verizon — there isn’t an unfamiliar company on the list.

Naturally, even the least financially savvy news outlets picked up on the story. And it was no surprise that many of them approached the milestone with skepticism.

“This Is America, Now” proclaims a headline in The Atlantic. “The Dow Hits a Record High With Household Income at a Decade Low.”

Headlines like this perfectly capture the mood of the American public right now. Despite the early signs that money is moving back into equities after a 13-year hiatus, crisis-era thinking dominates the public discourse.

Most mainstream news outlets are asking the same question: How can the markets look strong while the economic climate looks so weak?

The Atlantic article continues:

“The stock market alone hasn’t repaired the damage done to American household finances in recent years. In many ways, Americans are still sucking wind after the gut punch they suffered in 2008.”

This disconnect is only natural. Let’s assume the following:

1. Most Americans do not trust the stock market after the 2008 financial crisis.
2. As a result, many investors have fled to bonds and have not tested the equity waters yet.
3. Not as many regular Joes are following stocks anymore — and most of the reports they see are negative stories regarding the economy.

Notice how different the sentiment picture is today than it was in, say, 2000 or 2007. During the dot-com boom, consistent moves higher were never questioned. Stocks could not possibly lose value. Even smack in the middle of a secular bear market, the 2007 highs were also met with little scrutiny from the mainstream press. Americans — flush with cash from an unprecedented housing boom — had yet to feel the pinch of a sharp recession. Most investors were in a position to take risk.

Of course, we know how each of these forays into unchartered waters ended. So it’s no surprise that investors are balking at pronouncements of new highs here in 2013. Badly bruised from the past decade, they remain skeptical. That’s the reality of this move to new highs. It’s bear market thinking — and it isn’t going to go away overnight.

We’ve talked a lot about big, secular rotations recently in this letter. This is the process in which investors move from one asset class to another — from bonds to stocks, etc. Stock fund inflows from early 2013 indicate that we are in the very early stages of investors beginning to test the waters of the stock market again while bonds begin to look like they are near a top.

But as the reaction to new highs demonstrates, this rotation is not an event. It is a process. You cannot flip a switch and expect investors to embrace stocks. It will take a long time — months, maybe even years — for investors to “come back” to the markets. In the meantime, there will be pullbacks and corrections, fake-outs and breakouts.

These new highs in the Dow are just the beginning…

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The Dow Disconnect: How to Analyze Market Moods was originally featured in the Tomorrow In Review.

No matter how good certain data look, you can’t bank on the past to predict how prices will react with perfect certainty.

But what if I told you there was a 100% chance the market would finish out 2013 in positive territory? I hope you’d call me a liar. After all, there’s no way I could make that kind of promise. No one can.

However, I did stumble onto some very interesting data that have been perfect in their predictions since 1945. And they tell an interesting story about what could be in store for the market later this year.

More on that in a minute…

First, let’s take a look at how the market has reacted to a pretty substantial amount of news and interference over the past two weeks.

After a quick, nasty drop, stocks are percolating once again in the face of some nasty news. Italy and the entire eurozone continue to move closer to complete financial annihilation. And our now sequestered government continues to bicker over a few crummy budget cuts.

So there’s the bad…

But there was also some good mixed in. Last week, we saw some very upbeat housing data. GDP revisions weren’t terrible — and the market didn’t even seem to take notice. There aren’t a lot of data on tap this week, so the biggest curveball moving forward in the short term is likely headline risk related to Italy or sequestration.

Still, there’s a ton of new fear injected into the markets. One look at the most recent American Association of Individual Investors sentiment survey shows that bullish sentiment dropped more than 13 points last week.

This brings us back to our curious market pattern. The data are courtesy of Sam Stovall of S&P Capital IQ. Stovall just issued a report that shows there have been 26 instances since 1945 where the S&P 500 posted gains in both January and February (February, as I’ve mentioned before, is usually a weak month for stocks. In fact, the S&P barely squeaked out gains to end the month this year).

According to CNBC:

“In all 26 instances, Stovall says, the ‘500’ recorded a positive calendar year total return, averaging an advance — including dividends — of 24% and posting full-year results that were in the single digits just twice: 1987 and 2011.”

Those are spectacular results.

Does it mean that the market is guaranteed to finish the year with impressive gains, since the first two months ended in the green? Absolutely not. Even though we haven’t seen a miss in nearly 70 years, there’s no way to say with certainty that stocks will finish the year with gains — much less with gains as high as 24%.

Even if we take away any sort of guarantee, there’s still reason to be optimistic. Historically, the first two months of the year aren’t particularly strong together. That’s something significant. So even if we do get some form of an extended pullback this spring or even later in the summer, we can point to strength earlier in the year as a confidence boost going forward.

After all, when the market starts the year off on the right foot, it tends to follow through…

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A 100% Gains Guarantee? was originally featured in the Tomorrow In Review.

That’s a quote from a pessimistic analyst in a Bloomberg Op-Ed dated May 20, 2001 — just one day after Apple opened its first retail locations.

The arguments against brick-and-mortar retail are sound, for the most part. It’s an expensive proposition to open a retail location that could quickly become nothing more than a showroom for Amazon.com. And almost everywhere you look, old-school retailers are getting crushed as consumers opt for the convenience of online purchases.

Yet Apple has proven that if you do it right — and if your product line is good enough — retail can thrive, even in the tech space. Twelve years after its first foray into upscale malls in high-rent districts, Apple’s retail juggernaut brought in the sales. Apple makes roughly $6,050 for every square foot of store space. That’s more than twice high-end jeweler Tiffany & Co.’s $3,017 per square foot, according to consulting firm Retail Sails (via Forbes).

But the billion-dollar question goes to Google:

Can the king of search make retail work?

Google topped $800 for the first time last Wednesday. Over the past five months, it has separated itself from Apple, helping to lead the Nasdaq higher while Apple steadily slipped. Now rumors are swirling that Google is planning to open stand-alone retail locations — possibly as early as the holiday season.

Google stores could be a boon for the company. It’s already proven it can innovate (working prototypes of Project Glass and self- driving cars come to mind). But if Google can demonstrate the worth of its new innovations at retail locations to an endless supply of potential customers, a new period of growth could be in its future.

Don’t bet against them…

Instead, if you’re looking for failing retailers… look no further than the traditional ones that are experiencing a slow, painful death.

Shares of J.C. Penney plummeted 17% after the company reported a fourth-quarter net loss of more than $550 million. Despite some fairly drastic attempts at a turnaround, J.C. Penney looks like it’s headed in the direction of fellow old-school retailer Sears.

To some degree, big retailers have always been high-end flea markets. Different brands display their wares using sub-let space. But J.C. Penney extended this idea as part of the turnaround effort, creating coffee bars and hair salons inside its store. Basically, JCP is becoming a mall-within-a-mall.

Get it?

No? That’s ok. Neither does anyone else, which is partly why JCP posted a 25.2% decline in comparable store sales…

Of course, the more generic a retailer, the more likely it is that the company is going through tough times. It’s nearly impossible to compete with Target and Walmart on the discount side. For all the other stuff, Amazon and niche shops are stealing business left and right.

Best Buy is another embattled retailer suffering a similar fate. Amazon has clobbered the electronics big-box retailer over the past year, making Best Buy nothing more than a showroom for its rival’s online business. Best Buy has recently tried to keep its head above water with price match guarantees (which have helped in the short term, judging by today’s earnings release that just hit the wire).

However, I don’t see this strategy as a viable long-term solution. Gimmicks and coupons won’t drive bottom-line growth. And they won’t keep Amazon at bay forever.

You should remain skeptical of these two turnaround efforts moving forward. Despite the quick benefits of short-term fixes, they’ve already lost the war…

Regards,

Greg Guenthner

How to Play Tech’s Retail Dilemma was originally featured in the Tomorrow In Review.

That’s why sentiment surveys are so useful. If you can gauge exactly when opinions begin to shift toward extreme levels, you can plan to play the snapback move no one else saw coming…

There are a ton of sentiment gauges out there. But many of them — such as consumer confidence — are a more useful measure the economy, not the markets. So if you’re looking to find out how the market will probably react in the short-term, your best bet is to find out what newsletter writers are recommending.

This is not a sales pitch. You’ll see why in just a second…

Here’s a chart showing 10 years of newsletter sentiment compared to the S&P 500. Whenever the sentiment reading pops above 70%, the broad market has pulled back to some degree on a consistent basis. As of the most recent reading, bullish sentiment is topping post- financial crisis highs.

So unless newsletter writers have all bought new thinking caps, their bullish recommendations point to a correction in the near future. That’s right — it’s not a bad bet to go against newsletters when most of them are in agreement.

The folks at sentiment Trader have the stats:

“There have been a total of 9 weeks when the combined level neared 70% (a couple of them were clustered together). A month later, the S&P 500 showed a negative return every time, a median of -3.1%. Its maximum gain during the next month averaged only +0.1% (using weekly closes) while the maximum downside averaged -4.4%.”

As you can tell from the gauge, newsletter writers can be a fickle bunch (reserve your judgment — I might know one or two). The needle can swing between extremes a few times a year…

Even so, this is one gauge worth watching should the market continue to melt up. I’ll keep a close eye on any new developments in the coming weeks.

Best,
Greg

Are Newsletters Flashing Warning Signs? was originally featured in the Tomorrow In Review.

You can’t trade the news.

Well, you can. But you shouldn’t. In fact, I would go as far as to say there’s no strategy to successfully gauge how a news event or story will play out in the markets.

Remember the fiscal cliff debacle just a couple of months ago? The media played up every angle of the cliff, how it would end in disaster and probably ruin the economy and the markets. Politicians argued. They missed deadlines — then they kicked the can, without any real solution to the whole debt issue.

That’s when the market began to rally…

It’s a perplexing phenomenon for those who aren’t in tune with technical analysis. After all, humans are constantly seeking organization in a highly unorganized world. So when the markets fail to follow the script we’ve been given, we just don’t know what to make of all of it. That’s the big problem with trading on events and news stories. The market’s already three steps ahead of you.

If you’re going to rely on price action to guide your trading, you need to understand the three main reasons you can’t think like a news trader:

1. Correlation does not equal causation

Every single day, without fail, the financial media will post their market wrap-ups. They’ll summarize the day’s activity, give you the closing prices for the major exchanges and maybe even throw in a couple of foreign markets if there was any action overseas.

Of course, these numbers are not reported alone. There’s always a reason assigned for the gains or losses of the day. Stocks moved lower because of poor manufacturing data. Or they moved higher because of strong earnings from a couple of blue chips.

But is it true? Did the market (and its countless participants) collectively decide to move higher or lower for those specific reasons? It’s impossible to know for sure, yet it is reported as fact every single day.

2. Discounting

Famed technician Ralph Acampora says that an event can be discounted once — and only once.

So what does this mean?

Let’s say the market gets rocked by an unexpected announcement. The major averages fall more than 1%. And for the next week or so, additional news stories about this event continue to dissect and project what it could mean for the economy. Conventional thinking says that the market should continue to fall as the “bad news” is amplified. But that’s not completely true.

News happens one time. It is discounted once. If you own 100 shares of a stock and you wish to sell, you can sell your 100 shares only one time. The same is true on a larger scale. Unless there is new information, investors will discount a news item only once. Once the initial round of selling is over, you’re left with those who have decided to hold despite the information and those who sold due to the information. Until some new development changes minds, the event is in the rearview…

3. Expectations

Expectations have a big impact on how news is received. Just imagine a company reporting earnings. Management could send out an optimistic release detailing how revenue grew 10% the previous quarter, with earnings clocking in at record highs.

But if investors were expecting 15% growth and even better earnings numbers, the stock would probably sell off. No matter how upbeat the news might be, the reaction to the event depends largely on the expectations of buyers and sellers.

The same is true of big events. If investors were expecting a big budget deal the night before a deadline — and the government delivered — the reaction would probably be muted at best. What was “supposed to happen” came true. So if there’s no big surprise, it’s unlikely that any opinions on the matter changed at all.

The unexpected moves markets. Expected outcomes are usually already priced in…

Best,
Greg Guenthner, CMT

3 Reasons You Can’t Trade the News was originally featured in the Tomorrow In Review.

“The market anticipates, while the news exaggerates.”

– Bob Farrell

You can’t trade the news.

Well, you can. But you shouldn’t. In fact, I would go as far as to say there’s no strategy to successfully gauge how a news event or story will play out in the markets.

Remember the fiscal cliff debacle just a couple of months ago? The media played up every angle of the cliff, how it would end in disaster and probably ruin the economy and the markets. Politicians argued. They missed deadlines — then they kicked the can, without any real solution to the whole debt issue.

That’s when the market began to rally…

It’s a perplexing phenomenon for those who aren’t in tune with technical analysis. After all, humans are constantly seeking organization in a highly unorganized world. So when the markets fail to follow the script we’ve been given, we just don’t know what to make of all of it. That’s the big problem with trading on events and news stories. The market’s already three steps ahead of you.

If you’re going to rely on price action to guide your trading, you need to understand the three main reasons you can’t think like a news trader:

1. Correlation does not equal causation

Every single day, without fail, the financial media will post their market wrap-ups. They’ll summarize the day’s activity, give you the closing prices for the major exchanges and maybe even throw in a couple of foreign markets if there was any action overseas.

Of course, these numbers are not reported alone. There’s always a reason assigned for the gains or losses of the day. Stocks moved lower because of poor manufacturing data. Or they moved higher because of strong earnings from a couple of blue chips.

But is it true? Did the market (and its countless participants) collectively decide to move higher or lower for those specific reasons? It’s impossible to know for sure, yet it is reported as fact every single day.

2. Discounting

Famed technician Ralph Acampora says that an event can be discounted once — and only once.

So what does this mean?

Let’s say the market gets rocked by an unexpected announcement. The major averages fall more than 1%. And for the next week or so, additional news stories about this event continue to dissect and project what it could mean for the economy. Conventional thinking says that the market should continue to fall as the “bad news” is amplified. But that’s not completely true.

News happens one time. It is discounted once. If you own 100 shares of a stock and you wish to sell, you can sell your 100 shares only one time. The same is true on a larger scale. Unless there is new information, investors will discount a news item only once. Once the initial round of selling is over, you’re left with those who have decided to hold despite the information and those who sold due to the information. Until some new development changes minds, the event is in the rearview…

3. Expectations

Expectations have a big impact on how news is received. Just imagine a company reporting earnings. Management could send out an optimistic release detailing how revenue grew 10% the previous quarter, with earnings clocking in at record highs.

But if investors were expecting 15% growth and even better earnings numbers, the stock would probably sell off. No matter how upbeat the news might be, the reaction to the event depends largely on the expectations of buyers and sellers.

The same is true of big events. If investors were expecting a big budget deal the night before a deadline — and the government delivered — the reaction would probably be muted at best. What was “supposed to happen” came true. So if there’s no big surprise, it’s unlikely that any opinions on the matter changed at all.

The unexpected moves markets. Expected outcomes are usually already priced in…

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3 Reasons You Can’t Trade the News was originally featured in the Tomorrow In Review.