It seems most people probably believe the news drives the stock market.
I can see why, since the news headlines want to tell a story.
We like a great story. We want to hear the narrative. We definitely want to believe we know the causation of things going on around us.
Do you believe the news drives stock price trends?
The S&P 500 gained over 3% the past 5 days anyway…
It’s just the market… doing what it does…
This morning, in the U.S. we get great news on employment data.
The US Unemployment Rate measures the percentage of total employees in the United States that are a part of the labor force but are without a job. It’s one of the most widely followed indicators of the health of the US labor market and the US economy as a whole. Historically, the US Unemployment Rate reached as high as 10.80% in 1982 during a notable recessionary period.
The low Unemployment Rate has been a bright spot for the U.S. economy since unemployment trended up sharply in 2008 and peaked at 10.10% in November 2009, the highest level since ’82. A picture is worth a thousand words, so here the trend. from January 2007 to November 2009 as Unemployment Rate increased sharply from 4.4% to 10.10% in about two years.
Looking at the US Unemployment Rate in the bigger picture, below are the trends and cycles going back over sixty years. US Unemployment Rate is at 3.60%, compared to 3.50% last month and 4.00% last year. This is lower than the long term average of 5.73%. The last recession was the second-highest unemployment and it has recovered even smoother than before.
The headlines today:
I say: It’s just the market, doing what it does…
I believe investors underreact and overreact to new information “news.”
An overreaction is when price trends become overbought or oversold driven by psychological and investor sentiment reasons rather than fundamentals. It’s why we see crashes and bubbles, over short term and long term periods.
An underreaction is when investors initially underreact to new information such as earnings announcements, which leads to a predictable price drift. In other words, underreaction drives price trends!
Prices drift up or down over time when investors underreact to information.
Prices overshoot, trade up or down too far, too fast, when investors overreact to information.
This why my focus is on the direction of price trends, along with volatility, investor sentiment, and multiple time frame momentum.
My directional trend following systems are designed to catch the trends that drift from underreaction.
My countertrend systems signaled by momentum, extreme investor sentiment, and volatility analysis, are engineered to capitalize on overreactions.
Mike Shell is the Founder and Chief Investment Officer of Shell Capital Management, LLC, and the portfolio manager of ASYMMETRY® Global Tactical. Mike Shell and Shell Capital Management, LLC is a registered investment advisor in Florida, Tennessee, and Texas focused on asymmetric risk-reward and absolute return strategies and provides investment advice and portfolio management only to clients with a signed and executed investment management agreement. The observations shared on this website are for general information only and should not be construed as advice to buy or sell any security. Securities reflected are not intended to represent any client holdings or any recommendations made by the firm. Any opinions expressed may change as subsequent conditions change. Do not make any investment decisions based on such information as it is subject to change. Investing involves risk, including the potential loss of principal an investor must be willing to bear. Past performance is no guarantee of future results. All information and data are deemed reliable but is not guaranteed and should be independently verified. The presence of this website on the Internet shall in no direct or indirect way raise an implication that Shell Capital Management, LLC is offering to sell or soliciting to sell advisory services to residents of any state in which the firm is not registered as an investment advisor. The views and opinions expressed in ASYMMETRY® Observations are those of the authors and do not necessarily reflect a position of Shell Capital Management, LLC. The use of this website is subject to its terms and conditions.