After the seemingly unstoppable Russian Ruble + Oil price collapse, on Wednesday the market actually managed to close higher.
Yesterday we were just writing in our E-mini daily analysis that once the market reaches very oversold levels the bounce is always inevitable and that one should be careful when listening to the news: the falling oil prices and the Russian Ruble collapse were everywhere on the headlines, but you cannot know when the market will turn using the news. We have recently posted a humorous YouTube video on why you should avoid “Trading the News”.
So, what happened after the Close yesterday? As soon as the market bounced, the news started to change their tone and this morning they are all singing happy songs, have a look at this one for example, saying that the asian market is rising because the Fed is upbeat on the economy:
What is interesting to us is to witness the way the news are costantly changing themselves to adapt to what is happening in the market, in other words the news are chasing the market, they are lagging. If you are not convinced, watch our YouTube video .
Now, going back to our (much more boring, we admit) quantitative market analysis (below), just by looking at the probability of reversal at certain price levels (1961 WEEKLY, 1976.50 MONTHLY), one could infer that a bounce from the 1970-1960 price area wasn’t something completely unexpected:
So, as you can see it’s possible to predict market turns before the news are out, by using quantitative research methods. OK, it’s not possible to predict the exact turning point, no-one can do that, as the market prices are obviously generated by the random combination of multiple actions operated by various market participants (however note that our WEEKLY level was 1961, quite close to the printed bottom at 1961.50).
Let’s say that it is possible to predict the price areas where the market will turn, and this was clearly the case: but how many people instead were becoming incredibly bearish right at the bottom of this pullback, just because the news were becoming so grim and spreading fear all over the planet?
Be careful when using the news to trade: you will be a laggard and you will trade on the emotions of today based on the facts of yesterday, you certainly will not be able to front run the market as you could with quantitative analysis data tools.
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