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Watch out for the media gap

By Tamar Mehr

At times like these we see big gaps between what sells newspapers and attracts media eyeballs, and the underlining reality of what is happening in the market. That is not to understate the big swings of the past couple of days. But if we put these in perspective - i.e. take a look at how the the price action represents the pure market action - we start to see a different perspective from the recent news coverage.

The first thing the headlines screamed about was the amount of points that the market had dropped on Monday night. And of course the bigger the number, the scarier it sounds.

But if we compare this historically on a percentage base, we can see that we were far from having the biggest daily drop ever, as some headlines suggested. Naturally, one percent out of, say 25,500 in numeric value, will be bigger than one percent out of 12,000, which is approximately where the Dow was in September of 2008. (see the arrow on the chart below).

But that simple mathematical point seemed to evaporate in the frenzy of reporting.

Another point the coverage neglected to mention is the strong and multi-year bullish trend that the market has enjoyed for the last decade. From the lows of around 6500 in March 2009 to the new peak of around 26,000 in January of 2018, we have just about quadrupled the value of the Dow. And with such a strong bullish run, at some point some release of the strong buying pressure was only to be expected.

Zooming in on the monthly chart, the uptrend is still intact, and the moves on Monday simply got us back into the moving averages (MA) buy zone. Despite the big news about how much money was wiped from the market, we can see that we simply pulled back into September/October values (marked on the chart below with horizontal and vertical pink lines). And if we look back for the past year, or even the past six months, the market has still increased in value.

Many traders and investors look to the media to stay informed. But we should also be very careful about the opinions we are forming based on the information we receive. We need to filter the noise and stay with the facts. And as always, flawlessly execute our trading strategies based on our own proven rules, rather than the headlines of the day.

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