I don’t mean to belittle the plight of the goings on in Egypt as it is literally a case of life and death for the struggle for freedom there. However, to say that the chaos over there is the reason for the recent selloff is misguided in my opinion. We have known about the trouble in Tunisia and Egypt for a little while now, yet the market didn’t drop.
Makes For Good Headlines
Financial journalists always need a reason to print for the market’s behavior on a given day. Some of the headlines are flat out ridiculous and even contradictory. I remember reading that the market rose one day because of strong economic news and the very next day fell because of strong economic news. I am assuming the latter had to do with inflationary worries, but the point is that it was quite ridiculous.
There is no doubt that oil prices rose due to the Egyptian unrest, but is that the reason that Apple (AAPL) fell 2.1% or Google (GOOG) dropped 2.6%? I don’t think those two giants have big Egyptian operations. Where am I going with this? My main point is that market sentiment can change like the wind, without a real reason, and it is important to not try and find the cause for every little blip up or down.
In the short term, stock prices are driven by supply and demand and investor sentiment. The market got a bit ahead of itself recently and earnings reports and perhaps Egyptian unrest was the catalyst for some selling. Nobody ever really knows exactly why the market does what it does on a given day and it can be dangerous to always look for a reason because if it is the wrong one, you might miss an opportunity to buy or sell once that reason goes away. Let the market do the talking and learn to observe and study its movements without always attaching a reason to them. It will make you a better trader and make you more money.
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