Mish's Market Minute

The Self-Fulfilling Prophecy


It's interesting how news affects the market. The negative information, paired with human emotion, sends the market frantically lower.

It is also interesting to watch how it creates a self-fulfilling prophecy. When people hear negative news, a common thought is "My goodness, I must sell before everyone else does." If enough act on this, they create a chain reaction. Initial selling leads to stops getting triggered as the price moves lower, which then snowballs as more and more people get out of the market. By thinking you need to sell before the market moves lower, you make it come true, which in turn makes the self fulfilling prophecy come true.

You can see this happen clearly on Tuesday around 12:45pm, when President Trump said to stop negotiations for the stimulus package until after the election.

Keeping in mind how emotions move the market will help you make more clear trading decisions, whether you're caught in a quick selloff or maybe you're watching a stock that has yet to make any substantial move. This can sound like common sense, but it's easy to forget when trading - and even more so if you're the one losing money.

This is not meant to say that people should not have sold hastily. This is to help people remember why they are doing it, and where the initial driving force behind the movement comes from.

  • S&P 500 (SPY): Inside day. Support 334, resistance 343
  • Russell 2000 (IWM): 160 resistance, 153 support
  • Dow (DIA): 277 support, resistance 284
  • Nasdaq (QQQ): 274 support. Cleared back over 50-DMA with 282 resistance
  • KRE (Regional Banks): Inside day with resistance at 40
  • SMH (Semiconductors): Cleared 181, needs to get over 184 resistance next
  • IYT (Transportation): 207 pivotal
  • IBB (Biotechnology): 137 support, resistance 146
  • XRT (Retail): Needs to clear 54. In resistance now

Forrest Crist-Ruiz


Assistant Director of Trading Research and Education

Mish Schneider
About the author: serves as Director of Trading Education at MarketGauge.com. For nearly 20 years, MarketGauge.com has provided financial information and education to thousands of individuals, as well as to large financial institutions and publications such as Barron’s, Fidelity, ILX Systems, Thomson Reuters and Bank of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of the top 50 financial people to follow on Twitter. In 2018, Mish was the winner of the Top Stock Pick of the year for RealVision. Learn More
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