Sell the rumor, buy the news?

When President Obama approached the podium on the evening of Aug. 7, 2014 to announce the latest imminent kinetic action in Iraq (the fourth consecutive United States president to initiate a bombing campaign in Iraq), the markets were apprehensive. In less than an hour, S&P futures were trading more than 10 handles lower than before the announcement and solidly below the psychological 1900 level.

As the sell-off continued overnight many expected a volatile Friday with a continuation of the market weakness experienced during the Thursday session. This could not have been further from the truth. 

While E-mini S&P  caught a bid on the European open, it was not until the Russian news agency RIA Novosti took to Twitter and single-handedly took all uncertainty out of the Ukraine situation in 229 characters that we began to really take off.

https://twitter.com/ria_novosti/status/497701767107608576

https://twitter.com/ria_novosti/status/497701924444336128

While some market participants may look at those Tweets with more than a tinge of skepticism, the market took the bait hook, line and sinker. 

As if that weren’t enough, the Pentagon took to Twitter before the US market open to announce that the U.S. military began airstrikes in Iraq.

https://twitter.com/PentagonPresSec/status/497725099970031616

That was good for more than 10 S&P points to the upside when it was announced at 6:44 AM EDT.

The rally was not over quite yet however.  Just after 1:00 PM EDT, the Russian Defense Ministry announced that the Russian military exercises that were due to end on Friday had, indeed, ended.  We rallied another +10 S&P points.

As of this writing, we are 33 handles (+1.74%) off of the overnight lows on what many might claim is no news. In fact, the only tangible, and potentially unexpected, news was that the United States had in fact renewed our intermittent 23-year aerial bombardment of Iraq. Why not rally?

It would appear that Friday’s session bucked the old trading adage of “buy the rumor, sell the news” and chosen rather to flip it on its head.

 

About the Author

JW Reynoso, Investment Advisor at RCM Asset Management, began his career on the floor of the Chicago Board Options Exchange before working as an options broker at the Chicago Mercantile Exchange. JW provides RCM Asset Management clients with risk management and trading strategies that focus on Managed Futures and options. JW can be reached at jreynoso@rcmam.com.

Trading futures, options on futures and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. You may lose all or more than your initial investment. Past performance is not necessarily indicative of future results.

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