A few weeks ago, I ran across the following headline from Reuters: "Oil falls on stronger dollar, profit-taking."

It's one of my favorite Wall Street phrases: "profit-taking." But was the decline in oil prices really the result of traders closing out winning positions? A peek at the Chicago Board Options Exchange Oil Index (OIX) reveals that it had opened at 614.47 on the Monday (June 8) and reached a high of just 640.70 before fading that Friday to finish at 624.49. Given that the OIX got as high as 641.24 the previous week, I am left scratching my head. Where's the profit? (Find out what moves oil prices in What Determines Oil Prices?)

Opinion as News
And it's not just in the area of "profit-taking" that financial news headlines and stories appear to have fallen down a rabbit's hole. Everyday, it seems, I read fresh "news" stories that try to tell me why the market is acting the way it is. Check out these recent doozies:

"Commodity prices give up some of this week's gains"
"Commodities broke their winning streak Friday and retreated, as investors worried that prices might have shot up too fast." Madlen Read, AP

"Shares flat ahead of G8 as data digested"
"World stocks were flat on Friday ahead of a G8 meeting as investors paused for breath to discern further signs of economic recovery … Better-than-expected Chinese factory output in May and an upward revision for Japan's industrial output in April added to a deepening conviction that the global downturn has seen its worst … " – Sebastian Tong, Reuters

In the case of commodity prices, where is the proof that investors are "worried that prices might have shot up too fast?" Locked away in Al Capone's vaults somewhere? And exactly who has this "deepening conviction that the global downturn has seen its worst"?

Facts, Anyone?
Look, I'm not trying to make light of these stories - well, OK, I am - but passing off theories and opinions as facts is exactly the kind of thing that can get investors into real trouble. Remember the new economy, that Utopian vision of perpetual growth and prosperity, unencumbered by the pessimistic shackles of reality? As Dr. Phil might say, "how's that working for ya" these days?

It seems to me that investors would be wise to remember that the vast majority of those who write financial news stories and headlines aren't paid to be analysts and, thus, any conclusions they draw should be taken with a grain of salt.

Are investors really concerned that commodity prices have risen too fast in recent days? Perhaps, perhaps not. Did good news from China and Japan actually lead to optimism that the worldwide recession is, at last, coming to an end? Maybe, maybe not. The point is that nobody really knows; if they did, they wouldn't be writing stories for the AP or Reuters, they'd be sunning themselves somewhere in the Caribbean.

The Truth and Nothing But the Truth
Need proof that these assumptive headlines and stories are often mere conjecture? Consider this: On June 2, a Reuters headline proclaimed that "U.S. auto sales drop, but rays of stability seen." Since that time, Ford (NYSE:F), Toyota (NYSE:TM) and Honda Motor Company (NYSE:HMC) have all declined by 2.65% or more. If that represents "rays of stability," I'd hate to see what clouds of doom look like.

Another Reuters report on June 2 quoted an analyst who cautioned that "shares of Research In Motion (Nasdaq:RIMM) will likely come under pressure in the next few weeks as two rivals launch new handsets to compete with its BlackBerry smartphone." After a slight downturn the following day, shares of RIMM shot up 6.16% to close at $85.44 a share on June 11. Once again, the headline got it completely wrong.

So, the next time you read about a certain factor or economic indicator igniting to a market boom or bust, consider the source - or, better yet, do your own research. Hey, if your investment tanks, you can always blame it on "profit taking". (Sometimes, positive anouncements can mean bad news for a stock. Find out why, read Can Good News Be A Signal To Sell?)

Related Articles
  1. Mutual Funds & ETFs

    Top 3 Muni California Mutual Funds

    Discover analyses of the top three California municipal bond mutual funds, and learn about their characteristics, historical performance and suitability.
  2. Investing Basics

    What Does In Specie Mean?

    In specie describes the distribution of an asset in its physical form instead of cash.
  3. Economics

    Calculating Cross Elasticity of Demand

    Cross elasticity of demand measures the quantity demanded of one good in response to a change in price of another.
  4. Fundamental Analysis

    Emerging Markets: Analyzing Colombia's GDP

    With a backdrop of armed rebels and drug cartels, the journey for the Colombian economy has been anything but easy.
  5. Investing

    What is Descriptive Statistics?

    Descriptive statistics is the term applied to meaningful data analysis.
  6. Fundamental Analysis

    Create a Monte Carlo Simulation Using Excel

    How to apply the Monte Carlo Simulation principles to a game of dice using Microsoft Excel.
  7. Investing News

    Tuesday Intel: More Volatility Ahead

    Yesterday started the week with a dose of fear as the VIX shot up by almost 17 percent. The index has been consistently trending higher almost doubling its current value in late August.
  8. Fundamental Analysis

    Emerging Markets: Analyzing Chile's GDP

    Chile has become one of the great economic success stories of Latin America.
  9. Mutual Funds & ETFs

    Top 4 Inverse Equities ETFs

    Explore analysis of some of the most popular inverse and leveraged-inverse ETFs that track equity indexes, and learn about the suitability of these ETFs.
  10. Investing

    Watch Your Duration When Rates Rise

    While recent market volatility is leading investors to look for the nearest exit, here are some suggestions for bond exposure in attractive sectors.
  1. Is Colombia an emerging market economy?

    Colombia meets the criteria of an emerging market economy. The South American country has a much lower gross domestic product, ... Read Full Answer >>
  2. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  3. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  4. What are some of the more common types of regressions investors can use?

    The most common types of regression an investor can use are linear regressions and multiple linear regressions. Regressions ... Read Full Answer >>
  5. What types of assets lower portfolio variance?

    Assets that have a negative correlation with each other reduce portfolio variance. Variance is one measure of the volatility ... Read Full Answer >>
  6. When is it better to use systematic over simple random sampling?

    Under simple random sampling, a sample of items is chosen randomly from a population, and each item has an equal probability ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!