Greatest Game Ever Created: the Stock Market

Posted by on Jun 27, 2018 in Be a Trader | 0 comments

Equity share financing is provided liquidity with the founding of the NYSE in 1792

The Buttonwood Agreement formed the New York stock exchange and kicked-off the capitalist game called the stock market. To understand the stock market has to do with fiancé. For a business to raise funds – finance – they offer shares in its company. To do this there has to be a secondary market – the aftermarket – one that buys and sells the shares to provide liquidity to the original investors, called initial public offering (IPO). No one would buy an IPO if they did not have a way to sell it, full stop.

However, the bastion of the stock market remains one of the great unknowables for the majority even if they own common shares. Worse yet, many people who own shares have bought into shares not understanding risk, i.e., market risk.

What they need to understand is “the world is but a stage, ” and it is the story, the presentation, the PR that makes the market, not economics.

Today investors face information overload and misinformation.  The problem is compounded by the most sources of information being credible but the information being provided has nothing to do with the market, ascertain cause and effect of the stock market.

For example, Deal Book, a blog of the New York Times, written by Andrew Ross Sorkin could not be more trustworthy. However, their content, while informative from an academic view, has nothing to do with why the market is zigging and zagging.

A financial blog maintained founded in 2005 by Bill McBride Calculated Risk is followed for its economic commentary. The problem, again, is traders will use the stories to formulate opinions about macroeconomic events—such as employment statistics or political event—and how they will affect major indices.

Therein lays the rub, there is no hard and fast cause and effect between the news and market action. Unless of course, the news is about the market’s action in and of itself.

Shock blogs like Zero Hedge reflect how people follow the hype in their pursuit of profits. This blog is the stock markets equivalent to Breitbart when it comes to alt-facts. Zero Hedge is a leading source of gossip and other news that could have large impacts on a person’s judgment. The blog uses a pseudonym from Fight Club – Tyler Durden – to give it a macho image and to maintain its comments anonymously.

So many of the financial blogs are information providers and some with a point of view. Others provide information based on a trading idea, a strategy to enable the investor to act. One of the actionable types of blogs is COT Timers.

This financial blog interprets weekly Commitments of Traders (COT) reports, which provides the large dollar positions in most actively traded markets, including the equity indices. The idea presumes to watch what big money is doing is to know what smart money is doing. What they failed to understands is that big money persons are just people who can make mistakes like anyone else.

After years of publication, they have stop publishing on Monday, 22 September 2014.

To get a better handle of how the markets operate ask yourself what would you do, if you were mega rich, don’t laugh. How would you buy a major position in a stock without spooking the market, that is driving the price up making your investment more expensive? Put another way, how would you unload a major position in the security without causing the market to collapses?

Here is an investor’s fact of life: Big money needs liquidity to move into and out of a market. That liquidly is provided at major turning points when the broad-based public is active, providing that liquidity.  They are buying when big money is distributing shares and panic selling providing big money the opportunity to buy.

A contrary opinion blog created by Birinyi Associates provides aggregate data from other financial blogs. “Ticker Sense”  tracks the bullish or bearish opinion of major advisory blogs. It created the “Blogger Sentiment Polls” to provide insight into the financial blogosphere’s aggregate opinion on the overall market. The strategic idea is to look for an extreme reading of optimism after a major market advance to earmark a peak and an extreme pessimistic reading at major market lows.

Technical analysis blogs reduce everything to price to have an idea of when change is about to occur. The focus of Fallond Picks commentary is short-term trading. He provides a technical summary daily, but he still falls back on discussions of fundamental causes, and I am not sure from his writing how in-depth his understanding is of Technical Analysis.

You now have more understanding than the majority of stock owners. Remember when you are listening to the nightly market wrap it is a rationalization of a price based market events that preceded their comments.

If you are a contrarian as I am put that personality trait to good use. Learn how to advance your skills in investing, trading or advising become a Thinking Man’s Trader, today.

I welcome all comments and will respond promptly.