During this past work week, 12/16/19 - 12/20/19, a major news item came out. I'd like to point out how equity markets reacted.
The US House of Representatives voted to impeach the President of the US. This is only the 3rd time in history this has happened. Our current President is considered to be very business friendly. For example, he was behind deregulation and tax cuts to stimulate business. He's been pressuring the Federal Reserve to lower interest rates to stimulate business. He's been credited by many for the historical length of the bull market in equities. So given that and more to support American business, what reaction would you expect from the impeachment vote passing? I know the Senate has a Republican majority and won't remove the President from office, but still an impeachment process has to be considered a negative relative to consumer sentiment, which is close to 2/3 of the economy. So which market move would be the most logical and likely, up, down, or sideways?
Of course, the market should have dropped significantly on this news. But no. Equity markets climbed like crazy making new highs. So bad news, and the market had a melt up.
This is a good illustration why Technical Analysis beats Fundamental Analysis over the short run. I've seen a good reaction to good news and a bad reaction to good news. I've seen a bad reaction reaction to bad news and a good reaction to bad news. I've seen the stock of companies with a ridiculously high P/E continue to move up for years (AMZN for example). My point is, you cannot trade on a short term basis based on a reasonable reaction to news and fundamentals.
Meanwhile, Technical Analysis is very well defined. You can measure the percentage of occurrences of a pattern when it worked as expected. Even though fundamental traders often poo poo TA, I am very comfortable with my preference for a math, geometry, and statistics based methodology.
As one of my favorites trading guru's, Larry Pesavento, says "trade what you see, not what you think".
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