6 March 2014
Whenever there is a big move in the Rand (or any financial market for that matter), the first question that is asked is,
The widely-held and accepted belief is that news drives the market.
And more than that –
- If the market has risen, the news must have been GOOD news.
- And if the market fell, the news must have been BAD news.
Makes logical sense, doesn't it?
However, if this was true, any Tom, Dick or Harry could make money trading on the markets (when only around 5% do so successfully!)
No, unfortunately the markets don’t conform to this man-made logic.
For one, there are myriads of factors influencing a market at any one time, ranging from what is political to social, financial and economic.
But it can be argued that there are times when there are BIG news items that have much more of an effect on the market than other times - and this is true.
But then you might conclude,
MUST surely influence the direction of the market – right?"
WELL, let’s look at this theory - with a classic example of major news which rocked world markets.
Below is a chart of the Dow Jones Industrial Average from mid-2008 through to March 2009 (when the market finally bottomed).
Click to see full size...
Putting some perspective to this chart adds to the dramatic picture it presents.
If we cast our minds back, we will remember that September 2008 is when the financial crisis (which had been simmering for some time following the sub-prime collapse) quickly became FULL BLOWN...
... and global insurer AIG needing a bailout the next day.
Three days later, to try and prevent a market sell-off, the U.S. Securities and Exchange Commission banned short-selling on financial institution stocks.
With the pack of cards teetering, US Treasury hastily put together a $700bn rescue package to assist institutions in distress.
IT WAS REJECTED!
And the Dow Jones ‘predictably’ dropped 774 points on the day!
A revised package was hastily put together and resubmitted to the House on 3 October -
IT WAS APPROVED!
And based on logic, the Dow should have risen.
The market discounted this completely...
... and plunged 2600 points over the next week!
If ever there was a clear, classic illustration that news does not determine the direction of the market, this is it!
So why DID the market continue to fall?
Simply...
...and they were looking for ANY REASON to SELL - and NOT BUY!
And so the market continued to fall, until almost everyone had turned bearish and there were no more persons to push it any lower by selling....
...which is what happened in March 2009 (and we have been in an up market since).
Understand this and you will see the Rand and all other markets in a completely different light.
NEWS may be a TRIGGER...
determines the DIRECTION of the market.
It isn't the news that moves the market, but the actions (or non-actions) that persons have taken in reaction to this bit of news (or any other information they feel is important), based on how they are feeling at that time.
As a result, price patterns are a merely reflection of these changes in sentiment, which tend to recur (because we are humans that tend to react the same way in similar circumstances!)
And because of this, although irrational, there is some predictability about the market.
And that is what our forecasting service uses to assist you to make educated, informed and rational decisions, using pattern-matching technology to forecast future movements (of sentiment) based on how similar patterns have played out in the past.
As always, would appreciate your feedback and comments.
To your success~
James Paynter
P.S. And if you are exposed to Rand currency fluctuations, and are feeling frustrated by the Rand's wild movements, let us assist you by giving you up-to-date forecasts so that you can better time your transactions, and save you time, money, stress and effort.
