Monday, March 27, 2006

The News and the Market

“How did you get that news before they come out?”

--- A fried asked me.
“Excuse me?” --- I was confused.
“It looks like the news has strong correlation with your prediction! The prices of your stocks were driven by some news. Without the news, your predictions would be wrong!” --- He explained.
“Oh, I see.” --- I laughed, and then asked him:” How do you think I can get the news before hand?”
While he was thinking, I added another question: “If I tell you a news, can you tell me, at a few days later, how will the market react to it, and how much the stock price will be?”
“…But there must be something,” --- He broke his silence.
“There is something indeed.”--- I look at him, and asked him another question: “Have you ever experienced some situations such as a stock price dropped on obviously good news, or jumped because a bad news or irrelevant news?”
He nodded.
“Why?” I asked him.
“Because of the whole market …” --- He tried to list all possible reasons; at the end he added “The situation are all different.”
“In such case, what is the function of the news?” --- I asked.
“While, probably is useless; or not much…” --- He answered.
“But why sometimes the news is a very strong force to move the market; sometimes it is just useless?”
“…” --- My friend was thinking.
“Do you know what caused a volcano erupt?”
“?” --- He was confused.
“Could it cause by any on earth activity?”
“Oh!” He suddenly understood. “You mean that the news is a trigger only. The market is not drive by news. In fact, the market itself has accumulated its up or down energy. It would release the energy whenever there is a reason. In our case, it is the news, right?”
This time, we both laughed…

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