6 Sep, 2020

“Unaccounted For” and the Lack of Logic in the Market

Last week highlights one of the big problems with combining swing trading and computers; sudden, “unaccounted for” changes, i.e. “corrections”.

There’s no way to predict how people will react to news, across the board. Sure, if a company posts earnings above expectations, the stock will go up. If politics sour between the US and China, US companies that rely on Chinese imports and/or labor will see a drop. But all of a sudden, people become worried about a second wave of coronavirus, something that’s been talked about for MONTHS, and the entire market takes a dump. It both makes sense, and defies reason.

It makes sense because it’s bad news. It defies reason because it’s been expected, and really the market should’ve been accounting for this since the beginning; and that’s really part of what’s screwing up the stock market. The market “adjusts” based on predictions, for example, when Apple and Tesla went up on word that they were going to split their stock. And then when the stock split… it went up AGAIN, because it split. It’s a double reaction that compounds effects, resulting in artificial price inflation. The stock split was already accounted for in the first price hike, so the second one was unnecessary.

Same with the upward trend on the market overall since March 2020. The market tanked because of the worldwide shutdown, which reflected expected losses in earnings, sales, downsizing, etc. Logic would dictate that the market would rise in proportion to how the economy is doing, i.e. as more businesses slowly open and sales slowly climb, the market will slowly mirror that. Instead, we got a huge push that brought the market close to pre-Covid numbers, as if everything were back to normal, despite the majority of businesses remaining closed or at reduced production. And then when companies started issuing their quarterly earnings calls, which confirmed earnings losses, downsizing, etc., those stocks went down again; not as much as in March, but down. When exploding unemployment numbers were reported, the market would drop, even though that was basically already assumed in the March crash.

I’m sure you get my point.

As I’ve mentioned in previous posts, the market is artificially propped up, in a variety of ways. Last year there were reports that to keep the market afloat, the Federal Reserve had bought an unheard of amount of bonds and funds, essentially, price stuffing. They created the appearance of a thriving an active market by buying everything themselves, much like some people buy hundreds of copies of their own books to inflate sales figures, or how the Church of Scientology buys out whole theatres showing Tom Cruise movies, to inflate box office numbers.

The stock market is often touted as a reflection of the economy, when it’s anything buy. It has consistently hit “record highs” for the past 4 years, while job creation remains stagnant and wages even more so. Interest rates have plummeted to almost zero in an effort to keep the economy going when in reality all it does is give companies more credit and loans with which to drive themselves closer to bankruptcy. The stock market should be considered and treated (and regulated) as what it is: legalized gambling.

finviz dynamic chart for  TSLA finviz dynamic chart for  AAPL

 

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