Does the market dictate the truth or does the truth dictate the market?
"Market activity is the manifestation of beliefs through executed trades. When enough investors buy into the belief that certain patterns signify where a resistance and support level are located for an index or stock, then such notions become very real. The market’s belief dictates the market’s truth" (The Market Capitalist).
The stock market has long dictated the alleged truth due to the human tendency to acknowledge a delta in stock price and alter internal beliefs accordingly. Often, investors can be heard stating, "XYZ stock price is up. There must be some facts that I don't yet know about, or that I don't understand." Such investors often adjust what they "know" about XYZ stock to make sense of the stock uptick in their minds.At the extreme, and not outside the realm of possibility, the stock market becomes a self fulfilling prophecy* , such that the alleged truth becomes the actual truth, e.g. if aforementioned investor then begins buying large portions of XYZ stock and the increase in XYZ stock paves the way for a certain sector."Bear Market for Oil Caused by 'Fake News' Says Raymond James"Analysts at Raymond James recently espoused that the bear market for oil has been caused by overly concerned investors distracted by a plethora of bearish headlines following price declines. The analysts believe US inventories, demand, and production have been misinterpreted.
"The recent collapse in oil prices was triggered by a breakdown in the technical charts but fueled by the 'negative feedback loop' of bearish headlines that usually follow price declines. Some oil price headlines have been misleading, or outright wrong, and they have distracted investors from what we believe is fundamentally a bullish overall picture."
News headlines, according to Raymond James, have "amplified the downside" of events such as output recoveries from Libya and Nigeria, resilient U.S. shale drilling, and OPEC's ability to cap global oil inventories. The analysts point to the following list of myths:Raymond James further contends that crude oil has the potential to rise by 45%. The analysts examined U.S. inventory data beginning in March to capture OPEC's production cuts. Such data portrays that U.S. crude inventories have decreased by 280k barrels per day, compared to an average increase of 180k barrels a day during the same time period during prior years. "Moreover, factoring in stockpiles of refined products 'would be more bullish than looking at the crude only trend.'" Raymond James reported that global oil inventories have been declining by about 1.2 million barrels a day for the past four months.The company, however, is sitting lonely at the bullish table. Most other analysts are giving much more weight to rising U.S. production and Libya and Nigeria offsetting OPEC's production cuts. As written one week ago by CNBC, "Don't expect oil to reverse its bear market slump anytime soon, history shows".Predicting the short-term forecast of oil prices has always been a teetering game of seesaw, with winners and losers every day as new changes come to fruition. In the long run it seems reasonable to take a bullish view on oil. In the short-term? Only time will tell, but Raymond James sheds an important light on the phenomenon that can occur from a negative feedback loop caused by price declines and bearish headlines. Investors must ensure they are receiving a full story when conducting due diligence.Fake News?Exactly what quantity of the news we read is false? That question is beyond my realm of knowledge. In many cases, however, I believe it is not so much that the news is fake, but rather most news provides snapshots of specific data points riddled with opinions of a certain nature, and thus fails to fully explain an entire picture of reality. An article about the "threatening" oil output from Libya and Nigeria, for example, fails to detail OPEC's production cuts successfully occurring elsewhere. Such an article isn't lying to you, it's just not providing the entire picture.This poses a problem, as hundreds of thousands of articles are published every single day, many having an effect on market prices and subsequently investor action. Just how important is it that Tesla surpassed the market capitalization of GM and Ford? At the time, many articles were praising the future of electric vehicles. (GM, by the way, has already reclaimed its lead). One or two news sources is simply not enough for forecasting future prices.Events, and reported news about such events, perpetuates a certain belief system until an event contrary to a prior belief occurs, and only when that contradictory event is strong enough in the opposite direction will the market change course.So, I pose the question to my readers: Does the market dictate the truth or does the truth dictate the market?