Help...Market Ignoring Fundamentals? | Forex Factory

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Help...Market Ignoring Fundamentals?

  • #1
  • First Post: Feb 10, 2010 5:30pm Feb 10, 2010 5:30pm
OK, I'm trying to win an argument for arguments sake. Can someone give me some (strong) examples of when markets completely ignored strong fundamentals. I don't follow fundies much and can't win this without the help of my FF bothers.

Cheers guys.

Leon
Living the adventure in my head.
  • #2
  • Feb 10, 2010 6:10pm Feb 10, 2010 6:10pm
The only example I can think of are bubbles and mania's. The most recent I'd say the entire 'housing boom'. Prices were going up and up for years without any fundamental basis. Of course eventually like all bubbles and manias they usually go to the other extreme before coming back to fundamentals.

So housing will go from overvalued to undervalued to true value (normal market).

Nasdaq bubble would be another recent one. The Japanese Nikki and housing back in the 90's maybe another recent history example.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #3
  • Feb 11, 2010 11:31am Feb 11, 2010 11:31am
Quoting LasVahGoose
The only example I can think of are bubbles and mania's. The most recent I'd say the entire 'housing boom'. Prices were going up and up for years without any fundamental basis. Of course eventually like all bubbles and manias they usually go to the other extreme before coming back to fundamentals.

So housing will go from overvalued to undervalued to true value (normal market).

Nasdaq bubble would be another recent one. The Japanese Nikki and housing back in the 90's maybe another recent history example.
These were fundamental situations, in both the stock and housing bubbles there was liquidity and low interest rates which inflate the value of the assets, then when rates rise there is a crunch and values deflate. Looks fundamental to me.
  • #4
  • Feb 11, 2010 12:43pm Feb 11, 2010 12:43pm
Just watch one of those US 'market report' programs where they have guest advisors, they always give good fundamental reasons for a stock to go up or down and they are wrong almost all the time.
The breaking of a wave cannot explain the whole sea.
  • #5
  • Feb 11, 2010 2:56pm Feb 11, 2010 2:56pm
Quoting thesnacker
These were fundamental situations, in both the stock and housing bubbles there was liquidity and low interest rates which inflate the value of the assets, then when rates rise there is a crunch and values deflate. Looks fundamental to me.
You are talking about "After the Fact" and "Root Cause" of the bubble and mania, which you are correct.

I see what you are saying, but the if you look at the housing bubble the reasons for the inflated prices given (AT THE TIME) were, for example, "Real Estate: They aren't making any more of it". Trying to imply the price increase was pure supply and demand (lack of land for new building driving up the current price), when it was just a mania.

Personally, I've never owned a home and see it as just one big ponzi scheme, but that's me.

The Nasdaq Stock Bubble was "A Whole New Paradigm" and this was the new way to "Value" Stocks. The meteoric rise in stock price was not based on traditional fundamental values for companies. We were told this is a whole new technological revolution (true) and this is how company values are done now (false). Most certainly was not fundamental, in the sense of the rhetoric of the time. (Yes we can look back and state fundamental reason's for what happened, but AT THE TIME, there wasn't a valid fundamental reason for the rise i.e. "a whole new paradigm").
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #6
  • Feb 12, 2010 1:15am Feb 12, 2010 1:15am
This is the argument offered back to a post of mine where I said two things that the poster didn't like, these being...

a) Nobody makes money in the long-term by following trends
b) I then compared following trends to lagging indicators


"I'm still gobsmacked. Have you ever even heard of Dow theory or Elliot Wave Theory?

I will just destroy your point with the performance of the FTSE100 since March 2009.

By August/September 2009, it was very clear an uptrend in the FTSE 100 had started. There were plenty of reasons for this uptrend to carry on, i.e. rising production in US, Germany, China and India in particular sending commodity prices soaring from their lows, and the QE program in the UK. If you got into the vast majority of FTSE100 stocks in September, particularly miners, you would still have a substantial profit even now. If you had gone against the trend, you would have been burnt. Its as simple as that. Just because they didn't buy in early march and sell in early january doesn't mean they haven't traded right.

MACD is one of the most reliable indicators on offer, hence why it is so popular for traders. Are you saying they are wrong?"

I think this guy has learnt what he knows from university lectures in finance, so it's understandable he has a lot of trust in education and in what they teach him to be correct.
Living the adventure in my head.
  • #7
  • Feb 12, 2010 2:15am Feb 12, 2010 2:15am
Frankly speaking, I know lots of situations, when market completely ignored all technical anicators and analysis done before, but I've never seen the trade inadequate reaction to some really strong fundamentals. Due to that I can't trust to people, that claim their system to be "100% technical".
  • #8
  • Feb 12, 2010 2:36am Feb 12, 2010 2:36am
Quoting HVForex
Frankly speaking, I know lots of situations, when market completely ignored all technical anicators and analysis done before, but I've never seen the trade inadequate reaction to some really strong fundamentals. Due to that I can't trust to people, that claim their system to be "100% technical".
I'm not a great believer in technical indicators either.
Living the adventure in my head.
  • #9
  • Feb 12, 2010 3:14am Feb 12, 2010 3:14am
If you have some time to do some reading, Robert Prechtor (Elliot Wave technician) has some interesting views on your topic of interest. The first chapter - What really moves the markets - would probably be most relevant for you.
http://www.elliottwave.com/club/protected/pdf/Investor_eBook.pdf[/URL
  • #10
  • Feb 13, 2010 10:36am Feb 13, 2010 10:36am
Quoting Leonlorenzo
I'm not a great believer in technical indicators either.
I believe that the inverse correlation dollar/equities is a good example of traditional fundamental approach going nuts.


I'm a 90% techie but I would say that fundamentals work 100% of the time. The catch is to know which and how to look at it.

On the example above (dollar/equities) a classic fundamental approach will tell you that good news should prop US equities and the dollar . But because of other fundamentals ( like interest rate, risk appetite, carry trade, etc) a "good" environment will drive people to sell the dollar, while still buying equities. So you have a more logical (traditional) kind of fundamental not working properly because a temporarily approach focusing in another set of fundamentals took place.

Recently looks like that the inverse correlation is fading. This could bring us back to a more "normal" way of Analise or develop in a new kind of direct or inverse correlation depending on again which and how people will look at it.

Does not matter how one look at it the markets formula will give you more variables than what you can handle.

Technicals kind of follow the same path, (for the delight of the "educators" over the net) because after the fact you can always find an indicator to explain a movement. That said I would say that technical analysis narrows the number of variables you have to deal with, and tells you when you are wrong a lot quicker than fundamentals. thats why I prefer to use it.
  • #11
  • Feb 13, 2010 10:53am Feb 13, 2010 10:53am
Well , wait that market tells you what they intend...then trade...some traders including myself often go ahead of market...Needless to say that is wrong...
The Market pays you to be disciplined
  • #12
  • Feb 17, 2010 9:46am Feb 17, 2010 9:46am
Quoting Leonlorenzo
OK, I'm trying to win an argument for arguments sake. Can someone give me some (strong) examples of when markets completely ignored strong fundamentals. I don't follow fundies much and can't win this without the help of my FF bothers.

Cheers guys.

Leon
i want to help u with that quest to win this arguement but u cant win something so subjective as a fight about what the fundamentals where when things happen.. hindsight is 20/20 .. as a technical trader about a trade 3 years ago and for somereason every trade will respect lines and areas perfectly.. since they are drawn after the fact... same with fundamentals... theyll tell u why after the fact and what u could have done to capitalize it but they are not telling you with right sided thinking of how to trade the present. I would argue that its the viewers fundamentals that make it right or wrong and its completely subjective and cant be proved either way.
  • #13
  • Feb 17, 2010 10:15am Feb 17, 2010 10:15am
There are several ways to trade the news, wont go into much detail as it could take much time to teach someone to do such thing.
My advice would be to follow a system, a good system makes money in any market condition even while you sleep. The problem is too many traders waste much of their time on getting the "perfect" entry but lack the knowledge of exits.
A great trader will make the best out of both losing/winning positions by following a set of rules/strategy that puts them way above the crowd by simply exiting the market at the correct time.

Cheers,
S.
  • #14
  • Feb 17, 2010 3:59pm Feb 17, 2010 3:59pm
Fundamentals are very important, but some times they are overlooked for a long time by irrationality, in the long term the fundamentals are respected, the problem is that you do not know how long is long term.
  • #15
  • Feb 25, 2010 5:12am Feb 25, 2010 5:12am
Getting back to orderflow..Richard K Lyons has done much research on this very idea. In one of his papers he says that in the FX market in particular, macro fundies don't mean a whole lot under a months time frame. Day to day fluctuations in rates are just orderflow and cannot always be pinned down to fundamental data/news. If I recall correctly, Lyons found that 80% of rate movements below the one month horizon was pure orderflow, while fundies could account for the remaining 20%. It's like the engine or mechanism is always running, and news just provides some nitrous oxide to the fire.

I'm sure the Lyons paper is sitting on this site somewhere. That or google his name.

Macro Fundamental models are very weak at guaging and explaining prices.
  • #16
  • Last Post: Feb 25, 2010 5:30am Feb 25, 2010 5:30am
Quoting MackS10
There are several ways to trade the news, wont go into much detail as it could take much time to teach someone to do such thing.
My advice would be to follow a system, a good system makes money in any market condition even while you sleep. The problem is too many traders waste much of their time on getting the "perfect" entry but lack the knowledge of exits.
A great trader will make the best out of both losing/winning positions by following a set of rules/strategy that puts them way above the crowd by simply exiting the market at the correct...

Absolutely right!!
The Market pays you to be disciplined
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