A Media Pet Peeve of Mine.
Once again, another market rebound, and once again, an investment bank deal and a slide in oil prices are advertised as the reasons for the rebound by the media. I personally watched the market move in real time. I can say with absolute certainty there is no correlation between oil prices sliding $3, or the citibank deal. How do I know? I witnessed each move unfold with a totally different timing characteristic. Pictured here is the Dow Jones Industrial Index, which is often the most quoted index because of its simplicity. The DJIA is the favorite of both the laymen, the media, and even institutions. The pricing is simple, as its only made up of 30 common stock, and it moves nicely between whole numbers; every 1000 points seem to be a milestone in some regard. As you can see in the follow screenshot, the DJIA started the day with a strong up move that seemed to continue till the last 2 1/2 hours of trading. Then a slide wiped away most of the days profits, only to see a late rebound in the last half an hour to bring it close to its highs. All and all, a pretty typical day. We have an uptrend, some selling pressure, then an end of day rally.
Citibank and Crude Oil Futures, however, were not having typical days. News of Citibanks new refinancing deal broke mid day, as the market was slowing. In fact, once the market stabilised at 13000 at 4:45am AEST (i.e. midday in the US), we see some sharp dropping. It appears the market couldn’t care less whether Citibank just received an injection of capital. The reason is obvious; everyone knew this deal was going to happen, so it was never really modeled in as a factor. Then when the deal finally broke, other strategies were already in play. It made the Citibank news release irrelovent to the market participants, which is very normal. A single stock located large sector releases information that everyone either expected or already knew about, how the hell is this supposed to greatly affect the index pricing. The Citibank CEO would love the flattery that his new deal created a market move in the indexes. The truth is, even he’d admit it’s not really the reason.
That leaves us with oil. Oil gapped lower; in other words, it opened at a price much lower than the previous day close. And that was it. It stayed very close to that opening price. Oil didn’t move at all. That was until the final 2 hours of trading. Oil started dropping again as traders started hitting their stops, or selling out to wait for a better moment. But this action had no relevance to the index. The charts moved with absolutely no correlation. 
Investors in other areas, eye balling the oil commodity chart, looking for some sort of sign, would be disappointed. Sure the markets rallied strongly from the open, but then again, if this oil move was such a big sign, we should have seen more. You’ll notice the drop after the first hour, right where my crossbar is located. Thats a lot of indecision, considering oil showed its hand from the very first minute of the market open.
Truth is, traders were making sure participants have finished most of their selling before accumulating some inventory. As long as the market could stay afloat from the first hour onwards without too big a move, traders were happy to stock up on long positions. After all, you don’t want to be humiliated putting in an open order, only to see a big downwards movement against you. Why not wait and see what plays out? Late in the day, some sellers returned as the prices moved higher, but its the same theme, 12850 was seen by the market as a great opportunity to buy into a few positions. Even individual stock buys and sells was very up and down. Traders saw a bargain, and snapped on it, and neither oil prices nor Citibank news swayed the decision to execute.
The same old story re-hashed itself. The media has to print something. Bargain hunters are boring, unless they’re buying an all-time low. It doesn’t make sense to a laymen why institutions would be looking for long positions. But it’s all context. But its all relative to the timeframe and goals of the institution. It doesn’t make for sexy journalism, but this true understanding gives me a fatter bank balance.
