A Flight of Fantasy

Historical News Analysis can produce surprising results.

As the market continues to vacillate on the conflicting flow of Trade War news, the Football World Cup continues unabated. As indeed does our coincidental series of articles on the impact of news on markets. In today’s penultimate article we explain how news can combine with market sentiment to provide excellent trading strategies. Next week, as look forward to the final stages of the World Cup, we focus on the actual strategies themselves.

We have gone to great lengths to explain the complexity of news itself and the dynamic influence it exerts on markets—almost to the point where one feels tempted to ignore the news as indeed many do. And yet understanding how news interacts with price action is not only a source of opportunity beyond either fundamental or technical analysis but it can also confirm or encourage that analysis.

News itself fits almost exclusively into the fundamental part our of FITS (Fundamental, Intermarket Technical and Sentiment) approach. How much it influences markets is in part determined by the how much it could change the real world (Real Impact), the extent the news affects the main driver(s) of the current trend and the perception of both that real impact and effect on price action.

News that reinforces the perception of a new trend is more likely to prompt a resumption of that price movement than news which counters that perception or comes towards the latter stages of the trend. In other words the impact of news is a function of both the news cycle AND sentiment. It seems you could therefore almost ignore the Intermarket and Technical dimensions following a news alert.

However this is far from the case as firstly, the reaction of other markets to the news is an indication of both its significance and the markets’ perception of that impact. The number and extent other instruments move is itself an indication of the breath and significance of the news. And secondly, where and when the news breaks within a technical outlook is an indication also of it potential significance eg key trendline break is more likely to suggest a higher news impact. By combining fundamental and sentiment analysis using intermarket and technical analysis leads to a number of strategies we will discuss next week.

This ability to take analyse the potential impact of news on price action PLUS the analysis of price action to understand the longevity and significance of the news itself is something many traders do possibly without realising it. It is certainly an underlying principle to the Fractal Analysis.

For example, lets take two seemingly insignificant events this coming week. The knock out stage of the world cup and American Independence Day. Neither really should have much impact on the market and yet both, in isolation and combination highlight some interesting outcomes and opportunity. Firstly, the World Cup. The rather ‘fantastic’ comparison of current stock market performance to that under previous tournament continues to tip Brazil as the runner up.

But perhaps more excitingly, suggests England, France or Belgium as the favorites to win.

With the current betting odds, perhaps not a bad risk/return punt. But perhaps more importantly this somewhat tenuous template highlights Wednesday as a potential stock market bottom for a rally of some significance. But Wednesday July 4th, 2018 is also American Independence Day, And the stock market history for this holiday also flags a buying opportunity.

Interesting to say the least. But if you struggle with this use of history to highlight a trading opportunity, then you may find a cursory glance of the World Cup draw pushes credulity even further.

If Brazil is to be the 2018 World Cup Runner Up, this effectively removes France and Belgium from the final and tips England to win the World Cup. Yeah right ……

Here’s to making the very best.

Good Luck

Ed Matts
Matrix Trade

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