It is an exercise in futility.  They are very often completely wrong in my opinion.  The fact of the matter is that the big money on Wall Street is not really that sensitive to daily news.  They are sensitive about certain topics that have to do with the Federal Reserve and the Congress, but most of the other news gets ignored by huge investors.  See, huge investors cannot move big chunks of their portfolio around that easy.  They have to do it over a period of time or else they move the market.

The huge investors are trying to catch a majority of the big moves in the market.  Their accounts are too big for one person alone to move whole positions in one day.  They are more focused on the long term underlying economic conditions that will ultimately drive the major indexes. 

How does this relate to my point?

See, underneath all this activity that appears to be related to the news of the day, there are big whales on Wall Street executing moves regardless of what the news is.  Not only are there big whales, but there are also millions of us small guys whose opinions of the market also affect it somewhat.  Then there are the pension funds and mutual funds who are maintaining their allocation percentages.  There are thousands of other tiny factors that when added together can move the market.

A perfect example of this was on January 20, 2010.  All of the news channels were attributing this selloff to be somehow related to the upset election of Senator Brown in Massachusetts.  I would argue that only a small percentage of the selloff is attributable to that news.  The news reporters make it out to be the only reason the market is moving lower.

I was watching the charts of the major indexes very closely during the last couple weeks of December and the first couple weeks of January.  All indications had shown that the market was ripe for a breakdown.  Here were my reasons for thinking so.

1)      Market volatility was shrinking meaning that the market was beginning to coil up for a big move.

2)      Volume was non-existent on most days, especially on up days.

3)      All the major indexes looked like they were breaking out of a rising triangle pattern.  This normally happens on big volume when the move is for real.

4)      The charts looked like they were forming a very sharp point.

5)      New moves to market highs were getting smaller in size.  Each move higher was a smaller percentage than the one before it.

6)      Everyone on the news was saying that this market is going higher.  They kept saying that there was no reason not to buy right here.  You could not find a bear anywhere in public.

7)      Jim Cramer was ridiculously bullish telling everyone about all the deals to be had and how the bears just don’t get it.  During the top formation he was telling everyone to buy, buy, buy.   I found it exceptionally amusing how after 3 days of moving lower, he came on his show and said the market is going lower.  Umm….Jim……Ummm……You just told me to buy, buy, buy and that the bears were going to get killed.

8)      Even most of the guys on Fast Money were saying that the market was headed higher.  They tried to explain how the market was going to move higher on fundamentals.  They were dead wrong.  I think the only one who was skeptical was Guy Adami.

My point is that all of these people were trying to understand why the market was acting the way it was instead of just looking at the supply and demand for stocks.  The balance of supply and demand for a stock is shown every single moment on the charts.  If you were a chart follower, you might have noticed that the market was forming a top.  If you were a fundamentalist, you are still scratching your head over the move.

There are too many factors that influence the market.  In this case, the market just ran out of buyers.  Yes, that really does happen.  When everyone is buying stocks for the same reasons, eventually those people are as fully invested as they want to be.  So, they quit buying.  Somewhere you reach a tipping point where sellers come in for one reason or other.  Then the domino effect happens in the opposite direction.  The selloff gains momentum until it is exhausted.

This is how markets work.  Don’t let the good looking guys and gals on television convince you otherwise.  Markets move in waves of various sizes like it is explained by the Elliot wave theory.  In my opinion it is way too difficult to understand and predict all of the underlying fundamental factors that will move a market.  Leave that for the other guys.  I suggest you focus on what actually works.