Good News And Bad Market Action

September 1, 2009 at 8:08 am  ·  Category: Market Commentary, Technical Analysis

A good rule to follow (first promulgated in 1923, as far as I know) to check if good news is a prelude to further good news is to note the stock’s (or market’s) behavior after the event becomes widely known.  If prices show a tendency to continue to advance, one might then expect a continually higher level.  But if the price reacts immediately upon publication of the good news and shows no tendency to sell above the point reached at the time of greatest public enthusiasm, then it may have reached its peak for some time to come.

– Arthur Zeikel, former President of Merrill Lynch Asset Management, “On Thinking”, Financial Analysts Journal, May-June 1988

The last three trading days have seen good news and bad market action.

On Friday, Intel (INTC) raised their 3Q revenue guidance – and the market sold off.

Yesterday, Shanghai sold off but there was also bullish M&A news as Disney acquired Marvel and Baker Hughes acquired BJ Services – and the market sold off.

Today, the ISM Manufacturing Index for July came in at a strong – and stronger than expected – 52.9 – and the market is selling off in a big way.

This is starting to suggest that all the good news about crisis avoided and the worst is past is all priced in at this point.

Volume is pretty strong today as well.  The SPY has already traded 160 million shares and will bust through its 50 day average around 200 million.

spy-3-month-chart

Posted by Greg Feirman  ·  Trackback URL  ·  Link
 

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