Condor Options

The Associate Press’s market wrap-up was particularly rich last evening. On the heels of an upbeat headline, “Better data, strong 30-year auction lift stocks,” comes the lead: “The stock market’s rally is shifting to a lower gear.” Oh…kay…?

Then comes the explanation–the first part, that is:

“Investors welcomed a drop in jobless claims, growth in retail sales and better-than-expected demand at a government debt auction.”

Drop in jobless claims—great! The seasonally adjusted unemployment rate in the last week of May was flat versus the prior week. If one week of non-increasing unemployment, with continuing claims still on the rise, is a green shoot, hire me a hundred pickers and shout yee-haw! Oh, did we mention that these are just the “advance” figures?

How about those great retail sales! More detailed coverage from The New York Times explained that the “good” numbers came mostly from higher gas prices and spending on necessities such as groceries and clothing: “As income growth dwindles and the recession lingers, consumers are cutting nonessential spending from their budgets, as evidenced by continued declines in luxury purchases and sliding sales at high-end retailers, economists say.”

And that demand for government debt? Just a day earlier The Wall Street Journal told us that the market fell because of a lack of demand for 10-year treasury notes. In March, The New York Times passed along Bruce Bartlett‘s assertion that demand for higher interest rates was “good news”—so does that mean yesterday’s appetite for 30-year Treasury bonds was bad news?

If so, the second part of the AP’s summary judgement makes sense (sort of):

“But traders also seemed mindful of how far the market has come in its three-month rally…The data out Thursday helped but weren’t enough to keep the pace of buying strong through the end of trading.”

Neither the reporters, nor the editors, nor even the headline writers (well, maybe the headline writers), are to blame for these inconsistencies. If our livelihood depended on explaining why the market does what it does every day, distilling the daily business news and economic data into a few soundbites and calling around for catchy quotes from analysts, we’d end up rationalizing the irrational too. And to be fair, the AP story does go on to objectively report the facts, interspersed with analyst quotes that support the article’s cautious tone (in contrast to the upbeat headline).

The point is that we traders are engaged in a constant battle to filter out media noise. The only way to successfully make a living in the markets is to make our decisions based on probability and what the market actually does (as opposed to the media’s and the analysts’ supposed explanations for why it’s doing it).