Email Question

I received a question today as to "why doesn't the market discount the negative news?"

First of all, the market is much different now then 3-4 years ago, most of the trading is high frequency as well as the market making, it's a totally different market and you have to understand and adjust to that.

Second, the market does discount the news, just not in a way in which the news seems to correlate with the market, I've noticed this over the last year and was especially intrigued when problems and Egypt started and how oil reacted or failed to react, at least in the short term.

I believe this all has to do with the new or at least more influential accumulation/distribution cycle. Here are some charts to better explain.

 Looking at the bigger picture, the market is discounting a number of things. Note that this is the first time since August that the S&P has fallen out of the linear regression channel the defined the trend.

 On this chart, we went from a primary and intermediate up trend to an intermediate downtrend, note the arrows that depict lower highs and lower lows in the market. When the next low is taken out, the market will enter a primary downtrend, it's already in an intermediate downtrend.

Here's what I believe causes news to be discounted differently, on a longer term basis, the accumulation/distribution cycle. Around March 16-18th, there was an accumulation event in which Wall street firms accumulated shares. Since the event wasn't very large it seems to indicate a bounce. Should it have been larger, then the consequences would be different. If bad news comes out the next day after they have accumulated millions of shares, they are at a loss. They need to move the market higher then their average accumulated price and create a demand event which is typically the breaking of a price pattern or resistance level that causes retail demand. Once the demand is there and prices are high enough, the distribution cycle begins. Depending on how many shares were accumulated and how quickly they distribute them, (plus whether or not they take short positions for the next cycle down) determines the length of the cycle. Should they put out too many shares at once then prices fall, they want to sell into higher prices. So that's the cycle in a nutshell and why I watch the 1-15 min charts as they give a good indication of timing. The next leg down and how deep it goes is when the cumulative news and fundamentals are discounted, but as you can see from the first two charts, there has been a big change n the character of the market, it is discounting events, just not on a daily or hourly basis as it used to in the past.