Market myths and legends
Buy the rumor, sell the news
This saying is common among traders and is good advice. It indicates that the time to buy is when a positive buzz is forming, preferably before everyone else hears it! The second part of the saying tells us that by the time the rumor becomes a reality, any price increases will have already been included and therefore it is time to sell. The novice trader will often buy only when news about a currency or stock emerges and by that time the price may be about to change, leaving him confused as to why he lost on the good news.
Sell in May and go (the Halloween indicator)
This warning is one of the myths and legends of the market that has been around for decades and is intended to show that by selling any security in May, investing the proceeds in cash investments, returning to the market on Halloween will be more profitable. Various research papers have presented conflicting evidence, however the Stock Trader’s Almanac noted that the average return on securities between May and October since 1950 has been 0.3%, significantly lower than the return on interest rates at short term during the period. In contrast, during the same period, the return on securities from November to April was 7.5%. The media often suggest that investors ignore the strategy, citing short-term trends as proof that it is a myth; However, in the UK, Europe’s largest market, the adage has proven to be true more often than elsewhere.
As for why this should be the case, analysts point to a traditionally quieter streak in markets where holidays take precedence over serious trading. Traditionally, there is also less trading news with busy trading periods that seem to drift into the winter months.
Triple Witch Hours (Quadruple Witch Hour)
This is a time when seasoned traders tell us to go short on stocks, as three major and one minor securities expire in the last trading hour on the third Friday of the months of March, June, September, and December. The securities in question are stock index futures, stock index options, stock options and individual stock futures. While this should not normally cause a problem, expiration often leads to volatility in the markets as positions are squared. Trading can often go either for or against the trend of the day, so this is probably a good time to go short.
Friday the 13th
Friday the 13th is only a minor issue due to widespread superstition about the date. While there are typically more accidents and deaths during the day, many of them are believed to be due to people being overly careful during the day and having problems due to an unusual routine. It’s rare for markets to get worse, but there is often a noticeable drop in volume as a result of some trader phobias.
Black Monday, Friday or any day of the week!
‘Black’ days can get a bit confusing because on the bright side, Black Friday is the first Friday after Thanksgiving in the US when the holiday shopping spree begins. For retailers, security traders and the public it can be a very good day, anything but black. Black is also used to describe days of heavy losses in the stock and currency markets, including Black Monday; October 28, 1929, one of the worst days of the Wall Street crash; Black Monday on October 19, 1987, which saw the largest drop in security values in a single day. Black Monday August 8, 2011 when the US credit rating was lowered and thus the list of ‘black’ days continues.
Superbowl effect
One of the many strangest myths and legends on the market is the outcome of the annual US Superbowl. Analysts swearing by the rule say that if an AFC team wins the Superbowl, a bear market follows while, at conversely, if an NFC team wins, there will be a bull market ahead. Checking out the stats, the Snopes.com website notes that the rule has proven to be true in 33 of the 41 years of the Superbowl, a significantly better performance than probability would suggest. Those interested in finding a reason why they say that NFL winners tend to come from wealthier states that, taking the feel-good factor from their team’s victory, confidently invest in markets that drive up the odds. prices, while if your team loses, a depressed phase sets in motion in which they sell stocks causing a bearish run. This year the NFC Seattle Sea-hawks team took home the trophy and just FYI, the S&P 500 was at 1782.59 on the Friday before Superbowl 2014 and as of early April, hovering around the 1890 mark, another victory for the Superbowl Theory!
As January goes through stocks, so does the year
This received wisdom says that you should see how stocks perform in January and make investment decisions for the rest of the year based on that. It seems that during the last 50 years of the 20th century, the January Barometer was correct 92.5% of the time.
Hems
A funny theory, although quite sexist now. It has been said that as skirt hems rise, so do economies. This has been seen in the heyday of the sixties with the miniskirt, its resurgence in the eighties and, as the current recovery gains momentum, the miniskirt reappears.
Complex psychology is behind the theory, again, largely sexist. With apologies to female readers, the theory suggests that as the good times approach with the prospect of richer men, women show more legs to attract them. When a recession hits, they don’t want to attract the attention of the poorest men and therefore cover themselves!
Skyscraper theory
This theory claims that when a country completes what will be the tallest skyscraper in the world, its economy and its stock market will contract. The theory was proven in 1931 with the Empire State Building, 1974 with the completion of the Sears Tower in Chicago and the Petronas Towers, Malaysia in 1998. Counter-theorists point out that many of these constructions are commissioned when times are good and due. on the time scale of cyclical trends in markets, they are completed at the beginning of a slowdown.
Presidential effect
A pretty confusing one now …
Many experts say that the party that wins the US presidency has a direct effect on the stock market. While this seems to be common sense depending on the policies of the Democrats and Republicans, the theory has not worked in practice, meaning that no one is sure which party represents the bulls and which one represents the bears.
October accidents
Distributors are always worried about October and that is why it is tagged at the end of the adage “Sell in May and get out.” In 1929, 1987 and 2004, three of the worst financial crises in history occurred in October. One economics professor attributes the record to a false correlation, simply reading in statistics what you want to see, others think the event is true due to the nervousness that permeates the trade in the month due to previous events.
Hindenburg Omen
Not so much one of the myths and legends of the market, but rather an indicator, this is simply a dramatic name for the confluence of five linked technical indicators appearing at the same time. It was supposed to be called the Titanic Effect, but that nickname had already been used elsewhere. It is meant to predict an accident and every notable descent has been preceded by the ‘omen’, although an ‘accident’ has only been predicted one in four occasions. Timing of the prediction is also a moot point, as recessions begin within a week, up to four months later.
Golden cross
Another for technical geeks. The Golden Cross is when the short-term moving average crosses above its long-term moving average or resistance level. While the rule seems to hold firm, cynics say that reading the data in the lead-up to the event leads to media hype, making the rule come true. The old case of the ‘self-fulfilling prophecy’.
Death cross
Another technical indicator, the Death Cross, forms when the 50-day moving average crosses the 200-day moving average while moving lower. Interestingly, research on the Death Cross shows that for a century until the 1990s, the Death Cross was always followed by a market downturn, but for some reason the indicator stopped working 22 years ago. The researcher attributed the failure of the indicator in modern times to the fact that the two indicators have much less influence today than before the 1990s.
