Friday, August 06, 2004

The new, crazy, stock market

BW Online | August 6, 2004 | The New Rules of Investing... The long-term investor who checks in occasionally to see what's going on can be alarmed by what's happening. Technical indicators, like the level an index reaches on a analytical chart, can trigger major buying activity, even if there was no positive fundamental news in a particular sector. For example, one reason financial stocks rallied on Aug. 2 in the wake of a government announcement of a new terrorist threat may simply be because, that same morning, they fell to a technical level at which a lot of buyers had decided weeks ago to buy. So while most investors might have expected stock prices to decline in the face of rising fear, they actually rose. Go figure.

Similarly, individual stocks' moves can seem inexplicable until examined in the context of today's trading strategies. Did you wonder why Citigroup (C ) rose the day after its New York headquarters was named as a terrorist target? It may simply be because it was bought that day as part of a basket of bank stocks ...
We need to stop announcing market moves on the radio as though they were meaningful.

This noise is annoying, but I worry more about corporate governance and our weak financial regulatory environent. Those are the issues that are rigging the market.

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