The shadowy nature of today’s markets

Not so long ago, interest rates, corporate performance, and geopolitical events were the key influences on indices. Traders followed corporate earnings and reacted to geopolitical developments, and for the most part, the markets behaved as expected… with a few bumps in the road.

But throughout 2024, the markets have reacted to the usual announcements in ways that often defy logic, and fundamental traders are wondering if there is another factor being overlooked.

On 3 September, Dow Jones Industrial Average Fell 1.5%, or about 626 points, S&P 500 dropped 2.1%, or 119 points, and the Nasdaq Composit tanked 3.3%, over 570 points. All three dropped on the same day.

The mainstream narrative attributed the bearish behavior to weak economic data, namely a report showing that US manufacturing shrank again in August. Uncertainty about these factors led to market volatility. Also mentioned was a tech stock decline, particularly Nvidia and other chipmakers.

This of course makes no sense. Most of those factors already existed before 3 September and were factored into the price. Moreover, the following day, all three indices began a very aggressive rebound taking prices higher than the previous open… within minutes. If those economic concerns were a valid cause, why the rebound?

Sentiment vs algorithmic trading bots

For at least two years, we’ve been seeing sentiment override economic indicators like never before. This year alone there are plenty of examples of how companies with optimistic data have suffered on the stock market without any traditional explanation.

In the absence of sense, mainstream financial media turn to China as a scapegoat… which is a clear misdirect and quite absurd for every active economist and financial journalist. Sentiment is king in 2024, and it can also trigger bullish price actions, but not like what happened on September 4.

On 4 September, all three mentioned indices hit a bullish spike at exactly the same time and then dropped again. The number of traders that stopped out from such market behavior is unfathomable and suspicious. The timing of the pump & dump was too precise to be a coincidence. There’s one obvious culprit… algo trading bots.

Institutional algorithms are sophisticated computer programs used to automate trading activities. The trading bots incorporate risk management parameters and can be customized to meet specific trading objectives.

So sentiment can trigger a crash, which then triggers institutional buying. Hedge funds make a killing at the cost of millions to retail traders who are blindly following big media conclusions.

How to beat the system

It’s cliche, but here goes. Critical thinking and proactive analysis are your best friends. Two great questions to ask after every market surprise is: who would benefit from it, and what would you do next if you were with them?

Then head over to the legacy media to see if they are citing Russia or China as the cause of volatility. If the media are sticking to a misdirection narrative, then they could be serving up propaganda that will send traders down the wrong road.

In addition to all that, keep in mind that many economies are on the brink of collapse, desperately avoiding negative sentiment, which would surely trigger a recession. Optimistic news in the tech sector might cause retail traders to go long, which is the perfect signal for institutions to start slowly dumping as bullish volumes diminish. That’s when you dig a little deeper. 

Conclusion

Peeping behind the financial curtain can offer insights known to the ultrawealthy, and there is a feeling of power and wisdom seeing the events unfold as expected, especially when nobody else does. Only if you fully understand the system can you hope to beat it, so start thinking like a billionaire.

No matter what the news or charts say, always think of the larger picture. If an asset moves, who benefits from it, who loses? For example, when economists talk about the US economy being strong, they are ignoring the crumbling foundations beneath the Fed’s feet, and cherry-picking reports to fit a positive narrative. And those reports are becoming less and less reliable as the US election approaches.

‘Buy the rumor, sell the news’ has perhaps never been so appropriate as it is in today’s markets. Trade safe, but seize these once-in-a-lifetime opportunities that are appearing on the horizon.