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Michael Michaud is the founder of ( and the Invest2Success Blog ( He has been investing and trading in the financial markets since 1989. He founded to empower individual institutional... More
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  • How Markets React With Major News Events
    Breaking News

    Trading When a Major News Event Hits the Wires By NetPicks Trade Systems

    If you've ever been trading when a major news event hits the wires, you'll realize that markets can be heavily impacted. Interpreting the information and whether to adjust your tactics or not can be crucial to ensuring that you don't lose control of the situation and let go of your risk management rules.

    But all too often, emotions can get the better of us at these moments of acute potential - fear and greed can be strong motivational factors in deciding how to trade.

    How a Market Reacts

    When something like what happened in Paris kicks off, you simply can't predict how the markets are going to react. The very fact is that you won't have all the information in what more and more, are dynamically unfolding events.

    So whatever your immediate interpretation is, you can't be certain of whether there's not more to come - these types of terror events seem to be happening in co-ordination these days, as the perpetrators attempt to wreak maximum havoc.

    Types of Event

    Of course, major news events are not just about terrorist attacks - they can be geopolitical events, natural or man-made disasters and others too. In fact, these other types of event often have a far greater impact on markets that continues to influence prices over a longer period of time - think wars in the Middle East and energy prices for example.

    Different types of event can also have an impact on different types of product - unrest in the Middle East can impact on energy prices as I've already said. A large natural disaster in a major coffee producing country could see a sharp rise in coffee prices. I also remember a few years ago when there were floods in Thailand, hard drive prices were particularly affected. It could also be a case of the event causing moves isolated to localized markets.

    Short-term Market Behavior

    Short-term market behavior can give you a strong indication of the scale, at least initially, of what is going on. Markets might panic and sell off (or rally) sharply. Price action could also be very jittery as participants are uncertain of the impact of the event in the early stages of the news being made public. Erratic price action shows that markets are prone to directional movement, but doesn't assure it.

    A massive clue can be found in how the traditional flight-to-safety markets are behaving. Broadly speaking, these are the US Dollar, Treasury markets and Gold. When big market-moving events take place, participants move money from markets that are more risky to hold onto in these circumstances such as equities, into markets that they believe are likely to show strength.

    The other big thing to consider is whether the particular event affects a major financial center. If there are terror alerts in London, the chaos that can ensue will make it more difficult for traders to be at their desks. A few years ago, major snowstorms in the United States prevent traders from getting to work.

    Long-term Market Impact

    Whether or not there are any short-term market reactions to events, long-term impacts are far more dependent on whether anything structural within the market has changed. This could be like the floods in Thailand for example. Factory and local infrastructure damage hit HDD output capabilities in Thailand hard. PC manufacturers who knew they needed these HDDs, only exacerbated the problem by gobbling up existing supplies of the commodity.

    Given that Thailand was producing roughly half the global supply of HDDs at the time, prices took a sharp hike and stayed there for a considerable time.

    Adjusting Your Trading Tactics

    It's hard to know precisely what to do in any particular circumstance as there are so many different situations that can crop up. But whatever you do, you must always remember that your number one goal in trading should be to manage your risk.

    Backing off completely until you've had chance to gather enough information to know what you're dealing with isn't the worst thing you could do. Of course, you risk missing out on a big move. But where there's opportunity to make money there's always the risk of losing it. The bigger the opportunity is, the bigger the potential risk.

    Assessing any changes in price action and market behavior should be your first port of call. A market that starts to make quick back and forth moves and/or one where the orderbook significantly thins out could be a forewarning of things to come. If some of the flight-to-safety markets are beginning to react too, it increases the likelihood of there being a sizable market reaction.

    If you do choose to continue trading when a major news event hits the wires, you need to know what's going on at all times. Having reliable and fast news sources can make all the difference to your success here. Sudden developments to situations can and frequently do, send markets careering back in the opposite direction. Clearly, a trader who is ignorant to such a development, is probably at greater risk of taking losing trades.

    Being nimble in terms of being swift to get out of losing positions and in other cases, take profits, can help to mitigate the sudden increase in volatility. Of course, holding onto a good position when there's no real reason to exit and not being too jumpy is the other side of the balance a trader must strike.

    Trading When a Major News Event Hits the Wires

    Trading over major news events can be profitable. But for those who are uncertain of what to do, it can also be a very costly experience indeed. One which has the potential to completely scare people off trading news events in future. But ultimately, traders should thrive on volatility. So understanding which events to trade and how to trade them, is part of forging a successful trading career.

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    Nov 25 5:41 PM | Link | Comment!
  • The Future Of Obamacare May Depend Upon These Healthcare Companies
    Bloomberg Hospitals Index

    Obamacare's Fate May Rest on Patience of Insurers Aetna and Anthem By Bloomberg

    UnitedHealth's possible exit puts spotlight on biggest rivals.

    Anthem, Aetna see no deterioration in individual market.

    The fate of Barack Obama's signature health-care law may depend on how long Anthem Inc. and Aetna Inc. are willing to wait before starting to make money off it.

    The two insurers are on the hot seat now that UnitedHealth Group Inc. appears unlikely to linger as a seller on the Affordable Care Act's government-run markets. UnitedHealth, the U.S.'s largest health insurer, said Thursday that if it can't turn a profit, in 2017 it may quit the health plan marketplaces where millions of Americans buy coverage.

    While UnitedHealth has a small share of that market, Anthem and Aetna are two of the biggest players. Like UnitedHealth, neither has had financial success there -- Aetna has said it's losing money, while Anthem is making less than it would like. They're both working to widen profit margins and have said their strategy is based on the expectation that covering people under the law will become more profitable.

    "It looks like it's more of a United issue, with some flavoring of national issues," Bill Melville, an analyst who focuses on health insurance exchanges at Decision Resources Group, said by phone. "It's a wake-up call that there's been some pretty rough headwinds."

    Worrying Signs

    There have been other worrying signs. Already 12 of the 23 nonprofit exchanges created to sell insurance under the Affordable Care Act have said they're closing down, overwhelmed by financial losses.

    So far, though, Anthem and Aetna are holding steady in the market. Both companies said Friday they hadn't seen any deterioration in their individual businesses through the end of October. That helped their shares recover some ground after a rout the previous day. Aetna rose 4.4 percent to $104.28 at 2:08 p.m. in New York, and Anthem climbed 2.5 percent to $131.10. UnitedHealth also rebounded, gaining 2.4 percent to $113.24.

    "Anthem remains committed to enhancing access to high quality, affordable health care for all of our members inside and outside of the insurance exchanges," Joseph Swedish, Anthem's chief executive officer, said in a statement Friday. Anthem is "continuing our dialogue with policymakers and regulators regarding how we can improve the stability of the individual market," he said.

    Peter Costa, an analyst at Wells Fargo & Co., said Thursday that he expects Anthem and Aetna to lose money on the exchanges next year, potentially leading them to reconsider their postures.

    "We believe UnitedHealth's commentary that it would only participate in this market in 2017 if it expected to at least break even for the year is indicative of the mindset of many insurers," Costa said. "We expect that the experience of insurers will either improve in 2017 and beyond, or they will choose to no longer participate in the market."

    David Windley, an analyst at Jefferies, said some insurers could improve their financial results by quitting Obamacare's marketplaces.

    "Exiting the exchange market would likely indicate that the entire marketplace experiment has failed, thus no longer a threat to cannibalize commercial group business, and yield higher" earnings per share, he said in a note late Thursday.

    Few Years

    In late October, Anthem Chief Financial Officer Wayne DeVeydt said the company is willing to wait a few years for the Obamacare exchange business to improve. The company stood by that outlook in a Friday regulatory filing.

    "We are going to need to be patient until this works itself out, which we hope will be by 2017 and 2018," DeVeydt said. "What we thought would be a tailwind going into 2016 is probably going to be a headwind."

    Aetna had said on Nov. 10 that it was working to break even in the exchanges next year, and on Friday said its individual business is performing "in line with its projections" through the end of October.

    "It's way too early to call it quits on the ACA and on the exchanges," Aetna CEO Mark Bertolini said on an Oct. 29 conference call held to discuss third-quarter financial results. "We view it still as a big opportunity."

    The Obama administration said UnitedHealth's announcement isn't a sign of larger problems.


    "The reality is we continue to see more people signing up for health insurance and more issuers entering the marketplaces," Ben Wakana, a spokesman for the Department of Health and Human Services, said in an e-mail. "Today's statement by one issuer is not indicative of the marketplace's strength and viability."

    America's Health Insurance Plans, which lobbies on behalf of the industry, said Thursday that the U.S. needs to do more to improve the marketplaces. UnitedHealth isn't an AHIP member.

    Health plans are particularly upset that the administration paid out claims in a program designed to stabilize the marketplace at less than 13 percent of what insurers requested. The payouts were low because more insurers lost money than made money, though the U.S. has promised to make up the payments in future years. UnitedHealth, which today cut its 2015 profit forecast, didn't incorporate payments from the program into its 2015 and 2016 forecast.

    'Serious Challenges'

    "We've been very clear with the administration about the serious challenges facing consumers and health plans in this exchange market," AHIP CEO Marilyn Tavenner said in an e-mailed statement. "When health plans cannot rely on the government to meet its obligations, individuals and families are harmed as a result. The Administration must act to ensure this program works as intended and consumers are protected."

    Another challenge for insurers has been slowing enrollment growth. HHS has said it expects about 10 million people will be enrolled at the end of 2016, compared with 9.1 million at the end of this year.

    Other insurers have said they're doing fine.

    Centene Corp. on Thursday reiterated its 2015 profit forecast and said its health insurance marketplace business "continues to perform in line with expectations." And Kaiser Permanente, which has about 450,000 individual exchange customers across eight states and Washington, D.C., said it's "strongly committed" to the marketplaces.

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    Nov 22 6:40 PM | Link | Comment!
  • The Paris Attacks And The Financial Markets
    SPY ETF SP500 Index

    How Markets Respond To Crisis By Dr. Van Tharp Trading Education Institute

    "It demands great spiritual resilience not to hate the hater whose foot is on your neck, and an even greater miracle of perception and charity not to teach your child to hate." - James Arthur Baldwin quotes (American Essayist, Playwright and Novelist, 1924-1987)

    Our thoughts and prayers are with those who have been impacted directly or indirectly by the terrorist attacks in Paris over this past weekend. It's nearly impossible to wrap my head around something that seems so pointless. So disturbing. So wrong.

    I take solace in the resilience of the French people - and in the kindness of those reaching out to help. I know also that a small, radical faction of extremists can do nothing except heighten the resolve of free people everywhere to live, to love and to make this world a better place.

    As we ponder the ugliness of these events, we can take great comfort in the robustness of the human spirit. This form of resilience is reflected in how markets react to global crisis events - as we shall see in a moment.

    Markets' Reaction to Tragic Events

    It probably comes as little surprise that markets tend to bounce back quickly after tragic events. This knowledge undoubtedly weighed on Warren Buffet's thought process when he talked with CNBC on Monday of this week:

    Paris Attacks and the Financial Markets

    So Warren Buffet's vote of confidence is supportive and comforting, but let's look at some number from several people who published data just after the terror attack.

    The Numbers Say Terror Doesn't Pay

    One of the reasons often given for terror attacks is that they disrupt economic activity and weaken the attacked party in the process (e.g. the 9/11 attacks). Look, however, to see how long it took for markets to recoup declines after terror attacks since 1992 -

    Paris Attacks and the Financial Markets

    You can see from these intriguing data (put together by LPL from FactSet numbers) that of these 19 events, in only two cases did the market require 10 or more days to recover the initial losses that occurred after the event. Indeed, 14 of the 19 events saw the markets recover in only 1 or 2 days!

    Note to terror organizations: this strategy does not work and never has worked. The data show that any post-terror attack decline in the markets is actually quite fleeting.

    The French and their supporters didn't let it happen this time either.

    Amazingly, following the worst terror attack on European soil in a decade, the French CAC 40 index opened down only 1.1% and gained essentially all of that back in Monday's trading. Resilient indeed…

    Market Reactions to Other Major Tragedies

    One of the financial bloggers that I follow is Eddy Elfenbein. He's thoughtful (and also a good Twitter contributor). I don't necessarily see eye-to-eye with his long term buy-and-hold philosophy but none the less, his article this week had such good information that I'm including a portion of it here verbatim:

    Think back to some of the major political or personal tragedies of the last 75 years. In most cases, the market rose for several days after the unexpected, tragic event. Here is a list of our darkest days:

    1939: Hitler invaded Poland on September 1, 1939, launching World War II with shocking speed, reaching Warsaw within a week. September 1 was the Friday before Labor Day weekend, so how did the market fare when it re-opened? On Tuesday, September 5, 1939, the Dow rose 12.87 points (a massive +9.5% daily rise). In the first half of September 1939, the Dow rose a near-euphoric 14.6%.

    1941: After a surprise attack on Pearl Harbor, the initial market reaction was surprisingly mild. After the Sunday morning attack of December 7, 1941, the Dow declined less than 3% on Monday, December 8 (falling from Dow 115 to 112), but then the market stayed remarkably level over the next two months, dipping briefly below 100 in April, then resuming its inexorable rise during the rest of World War II.

    1962: In the week of October 22-26, 1962, the Cuban Missile Crisis brought the world to the brink of annihilation, but the stock market stayed surprisingly calm, falling less than 1% for the week, then rising strongly (+3.5%) in the two days after the threat faded. The much bigger collapse in 1962 came in the spring, when the market fell 28% after President Kennedy launched a verbal war with U.S. Steel.

    1968 brought two more tragic assassinations, on April 4 (Martin Luther King, Jr.) and June 6 (Robert F. Kennedy). King was shot on a Thursday evening, spawning riots in dozens of cities. The Dow fell less than 1% the next day. The Dow rose 2.15% on the following Monday and 4.6% for week after King's death. After RFK's death, the market fell just 1%, but then erased that loss in the next few trading days.

    1986: On January 28, the explosion of the space-shuttle Challenger on a sunny Tuesday morning had no impact on Wall Street. The market gained 1.2% that day, and it kept rising the next day, week and month.

    2001: The attack on America on September 11 was targeted at our financial heart, so the market fell sharply when it re-opened the following week, but it's important to remember that America was already in the midst of a recession and a bear market when that attack happened. Still, the market reached its September 10th levels within two months, on November 9, 2001, and it kept rising into the spring of 2002.

    There have been other major global events that rocked markets not covered here including the trifecta of horrible that hit Japan on March 11, 2011 - the earthquake, tsunami, and the Fukushima nuclear plant failure. As the uncertainty about Fukushima grew, the market took several days to bottom but prices were back above pre-disaster prices within only six trading days after the earthquake struck.

    I could go on and on but the history is quite clear: market participants (us humans) are quite the resilient lot and it only follows that the markets in which we trade and invest reflect this resiliency.

    As America gets ready to set aside next Thursday to show our gratitude by celebrating Thanksgiving, be sure to remember those who were devastated by the events in Paris and the senseless suicide bombings in Beirut a day earlier. As long as each one of us strives to support the good, the darkness shall not overcome us.

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    Nov 18 6:48 PM | Link | Comment!
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