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"?
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?)