Reasons behind short term stock market swings

[Sam]

Do you try to understand why the market is down one day, and up the next day, or vice versa?

It bothers me somewhat, so I try to read the related news.* But they just don't make any sense at all.* Something like "the stock is down because of xxxx", or "the stock is up because of xxxx".* xxxx is constant.

Do those news guys know what they are talking about?* It appears to me that they are under obligations to write something.* Or am I too dumb to understand the intricacies and nuances of their messages.

Sam

[Nords]

Quote:

Originally Posted by Sam Do you try to understand why the market is down one day, and up the next day, or vice versa?

No, but I hardly ever fail to be amused by the media's explanations of why it happened that way.

Quote:

Originally Posted by Sam It bothers me somewhat, so I try to read the related news. But they just don't make any sense at all. Something like "the stock is down because of xxxx", or "the stock is up because of xxxx". xxxx is constant.

You must need to read more. There are probably hundreds of reasons why the market went up or down at any time, and thousands of those reasons are published every day-- sometimes even hourly. One of those reasons is bound to be correct make sense, although the source's accuracy seems to rotate randomly through various publications & writers.

Quote:

Originally Posted by Sam Do those news guys know what they are talking about? It appears to me that they are under obligations to write something.

No and yes... "deadline analysis journalism".

Well, except for the ones who are highly experienced, highly respected, highly paid, incredibly attractive, or rich beyond human comprehension. But they're probably wrong 80% of the time too.

Quote:

Originally Posted by Sam Or am I too dumb to understand the intricacies and nuances of their messages.

From the nature of your questions, I can tell that you're escaping their hypnotic effect. The next step is not only to ignore them but to not even tune to that channel in the first place.

Although I'd love to see the day that Cramer literally pops a blood vessel, I bet there'll be plenty of websites showing the video...

[Indexter]

The commentators and writers absolutely do not know what they are talking about. Everyone wants to know why, and so news organizations tell you, even though they don't know.

The market will shoot up and the headline will be:

Market strong amid positive earnings reports!

then, one hour later, with no change in the news and no new news, the market will drop precipitously. Then the headline may change to:

Market falls despite positive earnings reports!

So, realize that no one knows why the market does what it does, and the truth will set you free!

[free4now]

I find much more agreement among the media on why the market did whatever it did, then on what the market will do in the future.

Basically they just report whatever the most prominent financial news was, and then if the market went going up they emphasize the positive new, and if the market down they emphasize the negative news.

When I was beginning investing I thought they actually knew what they were talking about, since they all seemed to agree somewhat about what caused the recent dip or peak. Turns out they all read the same newswires so they're really just regurgitating whatever they read.

[bow-tie]

Quote:

Originally Posted by Indexter The commentators and writers absolutely do not know what they are talking about.* Everyone wants to know why, and so news organizations tell you, even though they don't know... * *Market falls despite positive earnings reports! So, realize that no one knows why the market does what it does, and the truth will set you free!

Nah.... the market falls due to "profit taking"* *:

WTF?*

Whatever dude... heaven forbid they say "the market fell today due to fear and greed"

[justin]

How about "record earnings and GDP growth causes huge market rally" or "market crashes after record earnings and GDP numbers fan flames of inflation fears"

[bow-tie]

That kind of wordsmithed insight keeps the magazine subscriptions coming...

[Red-y]

Paul Merriman refers to it as personal finance pornography.

I remember a few years ago I had a subscription to Kiplinger's Personal Finance magazine. What with my job, family, etc. I didn't have time to read it but being the cheapskate I am, I kept all the issues resolving to read them "some day".

Lo and behold, I did read them about 2 years later. It was very enlightening to read all the breathless and certain predictions about the future direction of the stock markets, interest rates, currency exchange rates, housing prices etc. and compare them with what had actually happened in those 2 years.

They are all guessing, just like the weather forecasters.

[justin]

Quote:

Originally Posted by Red-y They are all guessing, just like the weather forecasters.

I disagree with that! Weather forecasters guess based on knowledge and science. They usually have a pretty good guess of what is going to happen. Their timing may be a little off or the temperatures a little off, but usually it's pretty accurate.

Financial journalists just out and out make stuff up.

[Nords]

Quote:

Originally Posted by justin I disagree with that!* Weather forecasters guess based on knowledge and science.* They usually have a pretty good guess of what is going to happen.* Their timing may be a little off or the temperatures a little off, but usually it's pretty accurate.

Whoops. I just snorted a few ounces of caffeine in the wrong direction/orifice, which attracted my spouse's attention while I was cleaning up the spray radius.

As a meteorologist & oceanographer, she wishes to add her quarter-century's seasoned opinion to your reasoned appraisal of the art & science of meteorological forecasting:

"It's all bullsh!t".

With that analysis in mind, let's see what Maria Bartiromo and Jim Cramer have for us today!

[justin]

Well, they seem to be able to at least guess on the correct general direction, speed and likely strike zone of things like hurricanes. We know the approximate (within a day or so) time when cold fronts are coming through (= storms and lower temps). It's not 100% but it's a lot better than flipping a coin.

Market pontificators can't even get the general direction of market movement correct. I might as well flip a coin.

I check the "5 day forecast" from the local news channel and figure it gives me a pretty good indicator of (1) is it going to rain within 5 days and (2) is it going to be hot or cold the next few days. I don't see any equivalent "5 day forecast" for the market.

[saluki9]

I do tune into CNBC for a laugh every once in a while. It's so funny to hear these "market strategists" give their predictions, and they are never called on them.

At least the local weather people admit when they're wrong.

[bosco]

Best explanation I heard was by J.M. Hurst in "The Profit Magic of Stock Transaction Timing." He attributed it to a mystical force called "X-motivation." Sort of like "The Force" Kind of like the old commercial for cough syrup that worked by acting on the "cough control center." Now that's science!

BTW, it's a fascinating book. He was one of the pioneers of signal processing (worked for Bell Labs IIRC) and applied graphical Fourier analysis techinques to dirty market timing. I think the book came out in the 60s or 70s.

[Sam]

Quote:

Originally Posted by Red-y They are all guessing, just like the weather forecasters.

I disagree. *Weather forecasting is a sound science. *Not perfect yet, but it should get better with time.

Remind me of an old joke:

A meteorology student was on vacation in a remote fishing village. *He took a walk on the beach and met an old fisherman. *Having heard that fishermen are reliable weather forecasters, he decided to test the old man. *"Do you think it'll rain this afternoon?" *Looking up, scanning the sky, and after a bit of pondering, the old man said: *"No, it'll be sunny this afternoon. *But we'll have strong wind." *Sure enough, the afternoon was just as said by the old man. *The next morning, the student asked the old man again what the weather would be like for today's afternoon. *Again, the old fisherman was right. *Impressed, the student finally asked how the old man come up with those accurate predictions. *"Preditions? *No, I listen to the radio early in the morning."

[audreyh1]

Quote:

Originally Posted by Nords No, but I hardly ever fail to be amused by the media's explanations of why it happened that way.

I am right there with Nords. I personally find a constant source of amusement in the silly "explanations" cooked up by financial media to explain market behavior any given day. Some of them are so ridiculous Great laughs often!

Don't worry about the short term reasons. It's like an onion - layer upon layer. There is a lot of "buy the rumor, sell the news" and vice versa activity. It's like a multi-level strategy game - everyone is trying to anticipate everyone else. The results end up being a totally random.

The only thing I have found to be consistent over a long period of time is that the conventional wisdom is usually dead wrong. So when most people start anticipating a certain outcome - something else happens. And it's almost always a complete surprise that no one saw coming, but is clear in hindsight - LOL!

This phenomenon never ceases to amuse me also.

So I watch daily markets for entertainment - nothing more.

I do have an interest in macro issues. I enjoy reading stuff about what's happening with housing market and how that might affect the economy, or how the global banks are draining liquidity, etc. I like to learn about those things and watch how they play out. But those kinds of things play out over years and years - really too long of a time frame to actually do anything about it investment wise. Friends of mine who ferret out these long-term trends are usually 2 years too early when they change their investment strategies and thus miss out. I've found the only thing I can do is rebalance my portfolio as conditions change.

So that just makes the daily stuff noise - which is all it is!

Audrey

[MJ]

If these so called commentators and writers were that good, they would be "playing" the stock market. They are no different than the pitch salemen selling their "how to ......" books and tapes. They are all making money on the product they sell and not the so call "knowledge" they possess.

[free4now]

It's not particularly hard to do "why did this recent market movement happen" stories... you just see what big piece of economic news came out when the movement started, and report that was the cause of the market movement. Oh, and you have to match direction... if the movement was up then choose the good news. If the movement was down then pick the bad news.

But when you start getting into longer terms like "why did the market rise alot in 2003 but stagnate in 2004?" Everyone will give a different answer.

[mathjak107]

the market is very efficiant and absorbs and reacts to every bit of news instantly.it starts in one direction,gets hit with another thought and heads in another..changes again with the next bit of news...most of the news is non conclusive and dosnt lead to a trend but sometimes the steps in different directions become a trend...when you look at a longer time trend line it all makes sense...since the 80,s interest rates dropped..of course the market trend is up...aaahhhh it all makes sense now once the crooked back and forth steps pick a longer term direction and follow it

[bpp]

When I first started investing I started reading the market analyses put out by a few different sources, and they all had completely different takes on what had happened each day and why. It took a while to realize they were all making it up.

[Nords]

Quote:

Originally Posted by justin Well, they seem to be able to at least guess on the correct general direction, speed and likely strike zone of things like hurricanes. We know the approximate (within a day or so) time when cold fronts are coming through (= storms and lower temps). It's not 100% but it's a lot better than flipping a coin. I check the "5 day forecast" from the local news channel and figure it gives me a pretty good indicator of (1) is it going to rain within 5 days and (2) is it going to be hot or cold the next few days. I don't see any equivalent "5 day forecast" for the market.

Quote:

Originally Posted by Sam I disagree. *Weather forecasting is a sound science. *Not perfect yet, but it should get better with time.

I hear what you guys are saying, but I have to live with this crap every day. Spouse used to be the Ops officer at the Joint Typhoon Warning Center, her relief has his doctorate in tropical meteorology and now works at the National Hurricane Center, and she regularly went to conferences with guys like Stacey Stewart or had Reservists in similar jobs come out to JTWC for duty.

The most accurate weather forecaster in the world is a holy grail called "persistence". Persistence says that tomorrow's weather will be the same as today's weather. That's it. Persistence is usually right just over 50% of the time and the next-closest forecaster is no better than 45%.

Everything else is a forecaster looking at charts and talking to the guy who's an hour or two upwind. We've known about that concept since Ben Franklin, who first wrote up the idea, and that's based more on dead reckoning than on science. If some meteorological phenomenon deviates from persistence then the vast majority of forecasters are about to bust.

Hurricane forecasts are largely based on military-funded software called SAFA. It was originally developed by crunching all of the science's established forecasting models through various supercomputers and assigning predictive accuracy factors to them. Then those various models were collapsed into a historical database. SAFA is the world's best hurricane track prediction system, but it does it by looking at all the popular propagation models and essentially judging which model was the most accurate before in this particular location under these particular conditions at this particular time of the year. Ain't no science there-- just a slightly more educated guess that past predicts prologue.

Since it was installed it's been tweaked by various other models and its parameters have steadily improved, but that five-day forecast is only about half as inaccurate as it used to be a decade ago. The JTWC watch officers learned very quickly not to forecast outside the time/distance parameters of SAFA. It's given everyone the confidence to work on seven-day hurricane forecasts, but every step forward can be blown away by a butterfly wingflap.

The major forecasting improvements are based on better satellite sensors from better orbits, better on-site data (by windsondes dropped from aircraft like the hurricane hunters), and on better predictive software like SAFA. But it's not based on an improved understanding of the thermodynamics, fluid dynamics, or even chaos theory. Some of the predictive science is making small theoretical improvements but that modeling is very dependent on the grid-spacing teraflops of analysis of various supercomputers. The U.S. used to lead this field about 20 years ago but the Japanese were ahead five years ago. I don't think any of the world's top 25 supercomputers are even at weather centers anymore, even though they used to be more than half of that list.

I think, however, that SAFA would be one helluva predictive tool at multi-deck blackjack, as long as every card in the deck had been seen before. If something changed the deck (like a strong El Nino or global warming reaching a tipping point) then all bets are off...