Reading The News Vs. Reading The Markets

Are you reading and reacting to news on the markets and trade deals? If you are, you’re too late. If you think China announces to the world they are going to buy and then lets the market bid itself up before they enter, I’ve got a bridge to sell you.

It’s easy to forget that the markets are sophisticated, advanced, and efficient. The news media constantly bombards us with very useless information on funds, blaming them for moving the markets. Tweets move the market, and algos, China and Trump and the EU and the stock market and margin calls. And let’s not forget the evil speculators.

To an extent, these things do affect the market, in the very short term. But in the long term, the market takes all information into account¬†, and reacts before the information even hits the newswires. It’s about the balance sheets, about supply and demand. It’s about how the decisions today will affect these things in the future.

A look back at soybeans

Look, for example, at the Soybean market in November and December. The market rallied, somewhat inexplicably at the time, from its 840 level, jumping to 880, and then to 920 to start December. After the move, it was announced that China was going to buy some unknown amount of soybeans. What happened? The market stalled. Then China started buying, and the market sold off.¬† The market reacted to the China purchases before it was announced, then sold off when everyone was caught up in the “good news.” Why the selloff? The market is pricing in the reality of the purchase size, regardless of the hope of the now bullish, and late speculator. It’s pricing in the size of the South American crop, the real demand for the product and the real potential acreage shift. So much of the stated information that is coming from South America and China is unreliable or unavailable, but the market is giving you the real data.

So what…

We can’t lose sight that this is a futures market. All too often we are reacting to news of the day, and not forecasting what the price will do in the future. Too often we put our faith in the analysts who are busy explaining yesterday’s move and not helping us make money tomorrow.

It’s not easy. On the contrary, it’s very, very hard. But if you want to really know what’s going on, look to the market for the real news of what is to come in the future.

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