What the Mega Millions Means for Stocks
What does last week’s record Mega Millions jackpot have to do with the stock market?
But you wouldn’t know it to look at the Wall Street Journal on Friday…
After all, the lotto was featured as a major economic story in the WSJ this weekend. All told, I counted seven different lottery articles on the Wall Street Journal’s homepage.
While I know yesterday was April Fool’s day, I only wish I were joking about that part. Of course, WSJ wasn’t the sole offender. You can also read about the lotto in CNN Money and Bloomberg. The absurdity is a little easier to spot because the lotto story is completely asinine. But the media does a much better job of disguising their bogus market attribution most days of the week.
For 95% of investors, major media outlets are the go-to place for understanding why the market’s moving on any given day. We’ve been programmed to turn to the news to understand why something’s happening. But today, I want you to see why it pays to be one of the 5% of investors that ignores the noise.
The “Mega Millions connection” isn’t the worst offender — it’s only the most obvious one.
“Investors flocked to consumer-oriented shares after data showed U.S. consumer spending rose by the most in seven months in February, even as personal income increased only modestly,” says an article that ran in Reuters on Friday.
How much “flocking” were those investors doing? They added 0.4% to the S&P Consumer Discretionary Sector Index…
As a trader, you’ve got to ask yourself whether investors were flocking to consumer stocks, or whether a Reuters journalist was looking for some reason to explain Mr. Market’s unimpressive trading. My guess is that example is a case of the latter…
I’ve said for a long time that Wall Street has an attribution problem. Investors see a big pop in stocks, and they look for the nearest headline as a reason for the move. It’s important to break from that frame of thinking if you want to find success in stocks.
More often than not, the headline being touted by Wall Street doesn’t matter…
To be sure, sometimes news really does move stocks. More often, a news blip is one of a thousand inputs that are pushing stock prices in a certain direction. For every investor who buys consumer stocks on marginally changed consumer spending data, another is buying because he thinks they’re cheap, and another is selling on a tip. But when real market moving news hits, you know it.
That’s why I rely on technical analysis…
At its core, technical analysis is the study of how supply and demand is impacting stocks in the marketplace — after all, supply and demand are the only two factors that actually impact a stock’s price. I don’t care what’s causing the supply or demand forces (it could be a news story or earnings improvements — heck, or even the $80 jillion Mega Millions drawing on the planet Jupiter).
All I care about is where those pockets of supply and demand are located, and how they can cue us to high probability trades.
If you’re new to technical analysis, I’d strongly recommend taking a look at the Penny Sleuth’s Research Reports section — there, you’ll find primers on putting technical analysis to work for your portfolio. It’s a starting point to help you ignore the daily noise — and focus solely on factors that actually move the market.
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