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Fundamental Analysis – Always Questionable

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I have warned many times that the greatest problem we face is the attempt to always reduced the event to being caused by a single fundamental as if for that instant everyone became democrat or republican. Even the criminal prosecution of  Raji Rajaratnam on insider trading is bogus for the same reason. The assumption is a single piece of news caused the event in question. Even if a fund manager has been given a piece of inside information, it could be a plant. Nobody ever makes a decision based upon a single piece of news. Why? Professional know that the “news” is always interpreted based upon the trend – not the other way around.

MarketWatch out of London reported today:

“The U.K.’s FTSE 100 index dropped for a fourth straight day on Wednesday  after the Bank of England said it will keep interest rates at historic lows until unemployment falls, but wasn’t as dovish as some had hoped.”

Here we have supposedly good news lower interest rates, yet the market declined so the news is just flipped to say it was not as “good” as expected. We have to try to always reduce events to a simple one-size-fits-all comment. Nobody wants to hear the 10 top reasons internationally for the event. When does good news not become good enough? When the market moves in the opposite direction! This human need to explain everything is the killer for when you line up the explanations and try to trade fundamentally, it becomes impossible to emerge with any coherent strategy that is consistent. Hence, gold declined for 19 years, money was still fiat, inflation soared, so the only explanation must be a grand conspiracy rather than the timing is just not right. The Trend is Your Friend. Good news is interpreted even more bullish in a bull market and bearish news is ignored. Likewise, in a bear market, good news is ignored as not good enough and anything bearish is see I told you.

The key is the trend in motion stays in motion until it is time to reverse.