Spike? What Spike? (Or…Never Believe Anyone When They Talk About the Markets)

On Thursday night, the Trump administration launched a missile strike against Syria as punishment for the use of chemical weapons against its own people. That’s not what this post is about, however.  This post is about financial news.

Is this really a spike?

Friday morning, I woke up to Christine Romans on CNN breathlessly telling me oil prices had spiked overnight and had been up a full 2% at one point!  I rushed to my terminal to see how bad the damage (or how good the opportunity) was.  Here’s the daily chart of CL I saw:

May 2017 Crude Oil Chart
Daily prices of May 2017 Crude Oil Futures

Spike?  What spike?  That’s not what I would call a spike.

A future post will deal with how to analyze price movements quantitatively, which will give us the basis for answering the question, “Just how did this price move compare to other price moves?”  But for now, you can just look at the chart and say along with me, “Spike?  What spike?”

The financial news industry

To be fair to Ms. Romans and CNN, though, they weren’t the only ones looking like Chicken Little.  Here are some of the other headlines from Friday morning:

Oil near one-month high after U.S. missile strike in Syria (Reuters)  (Note that Reuters has changed the headline and the article this link points to.  It’s pretty easy to be right when you can retroactively change what you said.)

Syrian missile strikes drive oil prices to four-week highs (The Telegraph)

Even Bloomberg (who you would think would know better) got in on the act Thursday night, although they had backed off somewhat by Friday morning:

Oil Prices in New York, London Spike After Syria Attack: Chart (Bloomberg)

Ok, so what?

The lesson is this:

Never believe anything anyone tells you about the markets until you investigate it and come to the same conclusion independently.

Not your best friend.  Not your broker.  Not the guy down the street who retired and now just trades for a living.  Not even your mother.  Don’t believe anyone.

And especially not the talking head in the box.

Dirty little secret: The role of the financial news industry is to keep you excited so you keep watching and they can keep selling commercials. The reality is it doesn’t matter to them whether or not they give you useful information, as long as they keep you excited and keep you watching.  And 99% of the time, they’re not giving you useful information.

When I was first getting interested in trading I read Investment Psychology Explained by Martin Pring.  It should be required reading for every new trader.  Pring was the first person that clued me in to the fact that information from the financial news industry generally has no value whatsoever.  None.

But it’s not their fault, it’s just their nature.  (The scorpion and frog story should be inserted at this point, but you’ve all heard it and it’s really kind of a stupid story – I hate that story.)

So do your own work.  Come to your own conclusions.  And turn off CNBC.