How often have you seen a market do exactly the opposite of what you thought it should do?
Maybe a stock went above and beyond in beating earnings… and ends up selling off anyway. Or maybe the Fed raised rates unexpectedly, but the market still went up.
It seems to happen all the time, doesn’t it? More than one trader has told me they feel like the market is “out to get them.”
What if I told you that’s not true at all.
There’s a much simpler explanation for why the market doesn’t do what it’s supposed to…
It has nothing to do with events like earnings already being priced in, or insiders acting on privileged information. Like I said, it’s much simpler than that.
The truth is that what most people think matters to the markets, actually doesn’t. Not at all.
Earnings, Fed meetings, inflation reports, employment data, interest rates, elections, none of it matters.
The relationship between these events and how you would think the market would react is extremely thin.
Imagine knowing ahead of time when major news events are about to break and how you would take advantage of them.
Important historical events have a very poor track record of moving the markets the way you would think they should.
Let me explain…
first, I want to say the nature of these events might make you uncomfortable. And I understand that. Our history is filled with events that have had profound impacts on America and the world at large.
Geopolitical conflicts, pandemics, scandals… these are all real events with real consequences. And one of those consequences is how they affect our financial markets.
I’m not suggesting that we look for disasters to take advantage of them in our trading accounts. What I am telling you is that we’ll continue to see black swan events and I consider it my responsibility to prepare you for them as best as I can.
For example, let’s say you could go back to the morning of November 21, 1963. You’re the only one that knows about the assassination of President Kennedy the very next day. There’s nothing you can do about it.
Equipped with this knowledge, you would probably think the market is headed for a sharp decline. Surely, the assassination of the president of the United States would result in a ton of volatility rocking the markets.
But fascinatingly, the market sold off sharply for just one day, and regained all its losses just two days later.
You can see the immediate aftermath of President Kennedy’s assassination in a price chart of the SPX below.
The market went on to rally significantly, as it had been doing already. Nothing meaningfully changed.
If a presidential assassination can’t sink the market, then let’s look at a different kind of historic event.
Hurricane Katrina is one of the most devastating natural disasters to ever strike the U.S. The hurricane shut down 95% of crude oil production in the Gulf of Mexico. This wreaked havoc on oil supply.
Most people would think that such a disaster would send the price of oil surging. So, let’s go back to August 29, 2005, the day that Katrina began devastating New Orleans.
Notice how crude oil only went up in price for one day. Afterwards, crude declined almost 21%, eventually finding a bottom in November 2005.
As you can see, there’s a world of difference between how most folks think markets would react to important news events and what markets actually do.
The most common models that most traders use for market analysis aren’t just broken, they simply don’t work.
Supply and demand, Efficient Market Hypothesis, macroeconomics… none of these have ever had a consistent track record when it comes to predicting future market movements.
But there is one model that’s consistently been successful. It’s the same one I use day-in and day-out to profitably trade the markets.
Free Trading Resources
Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career – at zero cost to you. Just click here to check it out.
The applications go far beyond just trading and investing too.
In fact, I’ve used this model as the basis for every major life decision I’ve made since graduating college. It’s helped me decide where and when to purchase real estate, which movie to see, and even predict the outcome of important elections (without looking at a single poll).
I’m one of the few analysts on record that successfully forecasted the sudden market crash of 2020. I’ve also quietly pointed out well in advance of almost anybody else that interest rates had put in a long-term bottom in 2020.
In the next essay, I’m going to tell you more about my analytical model, and how it’s different from anything you’ve seen before.
Studying this model has completely changed my understanding of not just our financial systems, but of the world as well.
Talk to you soon.
Imre Gams
Can we put this in a box perhaps?