Turn Down the Noise When it Gets Loud

Everyone has an opinion on the markets right now, especially around where they should (or will) go. I wish I had a dime for every reason or excuse the markets will go up or down, because I would have millions in the bank already. The pundits, experts, analysts and talking heads want to dazzle you with wild guesses, potential trends, relationships, and patterns that do not exist in order to get your attention.

The media – not the markets – is a huge distraction. Ignore them, because the market and options trading noise is getting deafening.

Case in point: In late March, CNBC (among others) were reporting incessantly about a particular options trade on the SPX (S&P 500). The May 1995 put strike of this one stock was targeted, and it was bought with massive premium (at roughly $136 per contract!). The trade size and dollar value raised eyebrows. “Somebody must know something!” Those options expired at a loss (well over 10%), and it seems that nobody knows the reasoning behind the trade. However, the incessant reporting caused panic selling, and the SPX 500 dropped sharply that day – for no other reason than this.

With some markets at new highs (namely the SPX 500 and Dow Industrials), one would think all is happy-happy-joy-joy with the markets, but that couldn’t be further from the truth. There are stocks that have undergone sharp corrections, yet they remain under the radar. No one is paying them attention, even though they are newsworthy!

So, just where is the media’s attention? On the new all-time highs instead of on the the broader market, which includes the Russell 2K and Nasdaq. The markets are telling us a lot about internals, sentiment and overall price/volume action, but these indicators are getting zero attention.

You know who is paying attention? Investor’s Business Daily (IBD), which has been flashing “Market in correction” for several weeks, even as new highs were reached. Clearly IBD is listening to the message of the markets, and not the noise.

I have written often of the dangers of listening to the noise and how distracting it can be. In uncertain times – when we don’t know what to do and feel like we are in no man’s land – we reach for news, or at least the opinion of someone we think is much more informed than we are. Resist the urge! Listen to the message of the markets. I promise you that the markets will not lead you astray.