Bad news isn’t good news for stocks anymore

Last year, the mantra was “bad news is good for stocks”. Now, it looks like traders have finally switched their thinking around, says John C Burford.

Over the years, I have noted a curious phenomenon in the markets. Something strange often happens to the psychology of money managers over the end-of-year holiday period. Perhaps it is the enforced hiatus in trading that casts a spell over traders. Or perhaps they take their minds off the markets for long enough to come to their senses.

Last year, the mantra was this: "bad news is good for stocks". Yes, this crazy idea took hold over the herd and was justified only by the idea that a poor economy would encourage the US Federal Reserve to keep interest rates on the floor and even encourage them to introduce more quantitative easing (QE) if the economy tanked enough. Of course, this implies belief that the Fed possesses a supreme power over the economy. As I have been warning: this belief will be sorely tested when the market starts its bear trend.

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John is is a British-born lapsed PhD physicist, who previously worked for Nasa on the Mars exploration team. He is a former commodity trading advisor with the US Commodities Futures Trading Commission, and worked in a boutique futures house in California in the 1980s.

 

He was a partner in one of the first futures newsletter advisory services, based in Washington DC, specialising in pork bellies and currencies. John is primarily a chart-reading trader, having cut his trading teeth in the days before PCs.

 

As well as his work in the financial world, he has launched, run and sold several 'real' businesses producing 'real' products.