Hidden Messages in the Charts
How Markets React to News Is the Real Edge
I hope you had a pleasant weekend.
So… Moody’s downgraded the US credit rating late Friday.
Bearish, right?
And the market did what you’d expect:
Sold off into the futures close. Dollar dropped too. Textbook reaction.
But here’s where news reaction can really give us some clues…
HIDDEN MESSAGES
One of the most powerful tells a market gives?
How price reacts to news.
Let’s say bearish news hits, market dumps.
Expected. Market’s doing what it’s supposed to.
But then… say price starts grinding back.
Maybe even takes out the high from before the news dropped.
Now that’s unexpected… and that’s your clue.
It tells you who’s really in control. Walmart last Thursday:
Bad earnings → Gaps lower → Dips… then rallies for a day and a half.
Expected → Then unexpected → Then opportunity.
I call it Expected vs. Unexpected Response.
If the market acts as it “should”, fine. You trade the new momentum, wait for it to exhaust or step aside.
But if it acts against the way it’s supposed to?
That’s a setup worth watching.
Combine that unexpected response with a strong technical setup and you’ve got serious edge.
Jason Shapiro (Market Wizard + $200m fund manager) calls it a News Failure, and uses it as part of his process.
He actually did a short video covering the idea in detail with some good examples.
Watch it here
If you’ve traded long enough, you’ve felt this.
Now it might be time to formalise it into your strategy.
Anyway, let’s see how the market responds to the downgrade this week…