WATCH: The 4 Stage Stock Market Cycle

Articles

Technical Tuesday - Ignore the News (Even When it “Makes Sense”)

By Chris Rowe September 6, 2022 Facebook Logo Twitter Logo Email Logo LinkedIn Logo

.

Hi, Chris here…

I hope you had a fine Labor Day holiday. (Isn’t it odd we celebrate ‘labor’ by taking the day off?)

I probably follow the news less than most people in my position – as a money manager and CEO of a major FinTech/FinPub company.

But a story from this past Sunday (September 4) caught my eye. 

For one thing, it was shocking and more than a little sad.

And for another, it makes for a strong and rare teachable moment. And what I want to teach here is a bedrock idea behind the True Market investing framework.

You probably saw the story:

(Click any image to enlarge)

The following day Reuters followed up with information that probably surprised no one:

“The death of Bed Bath & Beyond Inc's (BBBY.O) chief financial officer, who fell from New York's Tribeca skyscraper known as the "Jenga" tower on Friday afternoon, has been ruled a suicide, the New York City Medical Examiner's Office said on Monday.”

Again, this is of course a shocking story. And we all hope and pray the family of Mr. Gustavo Arnal is able to find strength and peace during this very sad time.

Now, BBBY is a $500 million dollar brand-name company trading upwards of 43 million shares a day. When something like this happens, people notice. Investors notice.

The Media Sees, But Never Understands

And of course the financial press was quick to associate a decline in BBBY’s share price to this tragic event. 

You’ve probably seen other headlines like that one. And putting aside the extreme nature of this particular story, the media was doing what it always does. Which brings me to the heart of what I want you to take away from today’s conversation.

With virtually no exceptions that I can think of, no one in the mainstream media has any idea how to actually see what‘s actually happening in the stock market. I try not to blame them for this, but it does sometimes make me angry that such a large group of influential people, tasked with reporting on something so important, rarely understands what it’s reporting on.

What’s more, most professional money managers cannot tell you what’s happening in the market at any given time. Not that this stops them from telling us what’s going to happen in the market at any time in the future!

It is true that BBBY’s stock price fell from the Friday (9/2) closing price of $8.63 to $7.12 today – a decline of -17.5%. And it seems to “make sense” that something like this, involving a key member of a firm’s executive team, “should” hurt the price of the stock.

But I’ll bet my autographed Warren Buffet bobblehead dolls that this decline had much less to do with Mr. Arnal’s misfortunes than most folks probably believe.

Here’s What’s Really Going On

For one thing, the past three days of trading activity, which of course includes today, have come with very light volume. Here’s that same price chart, only I’ve made it a little easier to see the volume (highlighted).

You can clearly see how far below the green “average” line is the most recent volume. “Volume equals validity.” Remember, this is a stock trading 40+ million shares a day. In recent days it traded barely half of that.

So the takeaway here is that investors are hardly flocking to the exits.

For another thing, by using the Position Key from Sector Prophets Pro, our sector research and data platform, we can see at a glance that BBBY is a weak stock in a weak sector. And not only that, it’s been weak and getting weaker for a while now.

We can see under ‘45 Sector Matrix’ that the Retailing sector is currently ranked #27 out of 45 sectors we track at True Market Insiders. So it’s down toward the bottom half of the rankings in terms of relative strength.

Those three red arrows paint their own picture of weakness.

Under ‘Sector RS’ we learn that the sector’s bullish percent index (BPI) chart went into a column of O’s back on August 19. (A column of O’s indicates that the forces of Supply, a.k.a the bears, control the sector over the short term.)

Under ‘Peer RS’ we see that the stock itself is ‘Weak’ compared to its sector peers, and has been so since back on May 11.

Finally, under ‘Market RS’ we see that since August 22 the stock has been weak versus the market at large.

One more thing. Bed Bath and Beyond, as we’ve seen, is a member of the Retailing sector. The Retailing sector is a subsector of the broad (or major) Consumer Cyclical sector. Consumer Cyclical stocks, also called Consumer Discretionary stocks, are stocks of companies that make luxury items – things people can do without. These companies tend to do poorly during weak and recessionary periods.

Right now the Consumer Cyclical group is ranked #10 out of 11 broad sectors. Weakness all around.

Conclusion

I mean it when I say my heart goes out to the family of Mr. Arnal. 

And there’s no reason to saddle his memory with blame for BBBY’s falling stock price today.

And not to sound like a broken record, but, as an investor, you’d do well to tune out the news. Even (maybe even especially) when it seems to “make sense.”

What makes sense is seeing what’s actually happening with the market or with a sector or with a stock and clearing your mind and emotions of “reasons” “why” what’s happening is happening.

Thanks as always for reading.

Trade Safely,

Chris Rowe

Founder and CEO, True Market Insiders

 

 

 

 

“You see it in the price before you see it in the news.”

FREE e-Letter
Sign Up

Archives