How News Flow Can Often Lead to Opportunity
Fear and greed are the ultimate indicators.
When the herd gets far too excited, they send a stock up too far, too fast. When they get fearful, they send a stock down too far, too fast.
Much of that happens because of news.
In fact, if you pay attention to news flow, you’ll spot opportunity, especially if it upsets or pleases the herd. Look at Chinese stocks, like Alibaba, JD.com, and Baidu, for example. All fell in late September 2019 after several news outlets reported the White House was considering new restrictions on U.S. investments in China – including the delisting of Chinese stocks.
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However, none of that was true whatsoever.
As White House trade adviser, Peter Navarro told Reuters:
“That story, which appeared in Bloomberg: I’ve read it far more carefully than it was written. Over half of it was highly inaccurate or simply flat-out false. It was really irresponsible journalism and the problem we have here… these bad stories push out the good. And what happens is as soon as Bloomberg puts it out there, there’s pressure from others to put it out there. This story was just so full of inaccuracies and in terms of the truth of the matter, what the Treasury said I think was accurate.”
What was maddening were the amounts of naïve traders that believed it.
The Administration and the U.S. SEC do not have the power to delist a stock. For a stock to be delisted, a major exchange would have to flag a stock for violation of rules.
Then, the SEC would be able to approve the delisting.
In addition, if the Administration had the power to delist, they most likely would not. That’s because doing so would bring substantial harm to U.S. investors, companies, and funds that own shares of Baidu for example.
Once all of that was realized, and once the White House said the story was fake, the same Chinese stocks that fell, recovered shortly after.
All a smart trader had to was wait, and opportunity fell right in their laps.
If you’re serious about making money in the markets, be able to decipher the news, and be able to spot overreactions to good and bad news. If not, you may be leaving money on the table.
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