Fear, Facts & Fundamentals
Being interviewed on CNBC & “ABC World News Tonight” on the same day makes it so clear to me how differently the market is viewed depending on what kind of desk you sit behind. I had no sooner walked out of the NYSE when an ABC producer rang (thanks btw to whomever changed the rules so that you can keep the same cell phone number even if you switch carriers – which come to think of it, is a factor in the economy recovery… hmm… a post for Greenfaucet – but I digress.)
Given that I was actually in the Wall Street subway station and could barely hear, I said “Sure I can stop by after my lunch appointment with the Director of Research @ fund of funds X (hec just because I also share an apartment and two dogs with the man I was meeting didn’t seem THAT relevant) I figured (assumed) they must want me to talk about the same thing I just got done talking about – how key levels play themselves out in market reversals.
Guess again – and note to self NEVER EVER – even if it is Charlie Gibson (or his proxy) calling skip the pre-interview! The point of the segment was to say that Friday morning’s drop in consumer confidence caused the Monday morning market swoon. But hec, to me, the discretionary high-frequency trader, Friday morning could have been 2001 by Monday afternoon.
But of course, I am the odd man out here – and not viewing the markets the way the “average investor” does. It also brings up some thoughts about the markets really do work – or the infinite loop between fundamentals, facts and fear.
Many traders and investors work off “fundamentals” – i.e. company prospects or economic data. Many traders work off “facts” i.e. the actual price something is trading at and the relationship of that price to prices gone before (some may not think these are enough but they are indeed facts – the S&P is trading right this moment at 984.50 and that IS a fact) and we all can get caught up in the two kinds of fear that drive the market – fear of losing and fear of missing out.
An uncanny phenomenon however is how the facts and the fundamentals converge. Last Friday we had been trading for 8 days at the November highs in the ES S&P mini futures contract when a worse than expected US Consumer confidence number was released – causing the market to take an intraday swoon. Now that swoon was in the making regardless in that we had failed to close above the key swing high for days and days.
So I simply saw it as a failure of a key level – but David Muir saw it as a disappointing confidence reading. Was one of us more right than the other? (Okay I am biased but)… In reality, NO. The two are different lenses used for different types of “photographs” but both explain the subsequent price action.
Fear may be the trump card – if we are rallying hard off of a low – like one made in March – there is a rush to get in and not miss out. If we are falling hard, like we did last Fall, there is a similar albeit more violent rush to get out. And here we are right back in the loop as those rushes change the facts (price) and price influences the fundamentals – at least consumer confidence and a whole slew of other economic or company earnings data.
The lesson here – enter this infinite loop through any door – fear, facts or fundamentals. Just know which one it is so you have the breadcrumb path to get back out!