Economic Reports Analysis

It is common for novice traders, when it comes to making first steps in stock market analysis

, refer to the news. Traders watch CNN, read Barons, browse Yahoo Finance and look through other financial media sources by hunting for a professional investments opinion that may help them in their investments. By some reason, when traders lose money nobody of them blame media for that.

When it comes to the analysis of the financial news through the popular media sources, I would recommend be very cautious. You may try to consider following facts: the media states the facts after it happens and the media is always right.

As an example it could be recommended monitoring media reaction on the FOMC rate announcements. When FED increases rates and market goes up media tells us that DOW, Nasdaq and S&P 500 went up because the investors are encouraged by the rate increase as an indicator of growing economy. When FED increases rates, however, the stock market declines, the media makes announcement that the same indexes (DOW, Nasdaq and S&P 500) declined because the investors are disappointed by the rate increase since it mean possibility of slowdown in borrowing and economy growth. It is not recommended to build a trading decision on similar announcements and trying to build a trading system or strategy on that.

As a rule, FED announcements and other economic reports are predetermined and majority of investors knows what to expect from them far before they are released. In addition all these reports and announcements are focused to reflect the longer-term trend of the economy. Whether it is unemployment report, rate increase, consumer sentiment, or anything else it is not something momentum that may change over a few hours. The short-term (couple of hours) stock market swings after an economic report release is actions of speculators who are trying to make fast backs in volatile trading and in no case it reflects the sentiment of long-term institutional traders who those reports are aimed for. Yet, it became custom for media to judge about affect of the financial even on the stock market trend as soon as possible (it is their completion) and base their judgment on the short-term market reaction.

It is not about trusting media or not. In the media world completion makes editors to publish news as soon as possible, find some sensations and some dirt. If you are an investor it could be a good idea to take a look at economic reports by yourself, check stock charts, make your own analysis and only then put your own money into a work.

by: Viktor Ka

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