It was not so long ago you’d telephone into your broker to make a trade. You’d have to wait until the morning papers came out to check where your stock closed the previous day. News cycles would last for weeks on end, sometimes months if the story was big enough.
Fast forward to today. News cycles last minutes. A tweet will cause billions of dollars to be liquidated or created. It doesn’t even have to be factual. According to current estimates, global data creation is 2.5 quintillion bytes per day. Heck, I just created more data asking AI for that information. As we learned in the last Trump Presidency, this only serves to accelerate market moves. For traders, that means more opportunity, but it also means we have to have some strategies to recognize and manage our risk.
Short term traders are the most vulnerable to tweets, news and political announcements. Intraday volatility and average true range (the amount of dollars a ticker will move on an average day) will increase. For mean reversion traders and those that enjoy quick short-term volatility, these news opportunities are a great way to scalp smaller positions.
When news impacts short term trades, it’s important to separate your perception of the news from the market’s perception. It’s also important to attribute it correctly. In the examples below we can see the direct impact of tweets and news on the market. Sometimes at the end of the day though, we’ll see people attribute news to the markets, that the markets themselves didn’t notably react to. Most notably when we get these news reactions, there is an increase in volume accompanying the moves, and short-term traders can utilize volume alerts to keep an eye on news volatility.
Medium term swing traders would do well to pay attention to sector rotation and sectors that are in the spotlight. Spotlighted names can include trades that political parties are taking. TEM is a great example. When Nancy Pelosi announced her purchase of TEM, the stock gapped up 30% and has continued to run over 100% since its announcement. Even when the broader market dips are heavily bought back up, not every sector recovers the same. Watching for signs of exhaustion or dis-interest from the broader market can help traders protect positions that may be vulnerable to news, either by taking scales of profit, or hedging positions until the trend is proven broken.
Long-term investors are watching longer term rotational charts. Do we see trends changing in sectors that are impacted by the “pirate ship”: the conglomerate of picks for various political positions that may affect policy outcome. Examples include RFK’s nomination and its potential impacts on the health care, cannabis and psychedelic sectors. They are also watching trends of money entering or exiting the markets in substantial amounts to see if there are any technical reasons they need to increase hedging or profit taking.
All in all, the market will move faster and more aggressively, but technicals still support the moves, and the opportunity for those looking for it will still be abundant. As always, positioning yourself with proper risk management, whether from sizing or hedging will be the key to longer-term success in the markets.
