Nasdaq is not afraid of news. Afraid of surprise

Speak up, gang!

There is one thing I have learned over more than 10 years operating the American market: it is not the news that moves the market. It is the difference between what the market expected and what actually happened.

And the latest economic indicators from the United States help to understand exactly that.

The ISM services index registered 54.5 points in October, remaining above the 50-point line, which indicates expansion in economic activity. The ADP report pointed to the creation of 86 thousand jobs in the American private sector.

At first glance, these numbers suggest an economy that continues to demonstrate resilience.

But there is a much more important question for those who operate the Nasdaq:

Is a strong economy necessarily good news for the stock market?

The answer is no.

The paradox of a strong economy

When the American economy shows strength, the market may interpret that the Federal Reserve will have less room to reduce interest rates.

And higher interest rates for longer could pressure the valuations of technology companies, especially those whose prices reflect expectations of future growth.

On the other hand, positive indicators can also strengthen confidence in economic activity and company results.

Do you understand the conflict?

The same indicator can fuel both a buyer and a seller reaction.

It all depends on the expectations that were already incorporated into the prices.

This is where many traders make the biggest mistake

The beginner sees positive news and believes he needs to buy.

You see negative news and believe you need to sell.

But the market doesn't work that simply.

I have seen countless situations in which an apparently positive indicator was followed by a sharp drop. And others in which negative news preceded a significant recovery.

This happens because the price does not just respond to the published data. It also reflects expectations, investor positioning, liquidity and risk perception.

Operating a news story without understanding the context is trying to guess the reaction of thousands of participants at the same time.

What does the Confirmation Clock have to do with it?

It was precisely the need to develop a more disciplined reading of the market that led me to create the Confirmation Clock.

My methodology was not built to predict the future or guarantee that a trade will be a winner.

It was developed to help the trader interpret price behavior, identify specific market conditions and avoid hasty decisions.

Because it's one thing to see movement.

Another, completely different, is to identify an opportunity that is aligned with your strategy.

And even when there is confirmation, the risk remains present.

Therefore, risk management, stop definition and discipline are part of professional practice.

The news passes. The price behavior remains.

While many investors are trying to figure out what the next indicator will trigger, I prefer to observe how the market actually responds.

Economic data can create volatility.

Expectations can change the direction of prices.

But no headline replaces a consistent process of analysis.

The professional trader does not need to get the news right. You need to know what to do in the face of the market’s reaction.

This is a fundamental difference between speculating on impulse and developing a method-based activity.

After more than a decade of following the Nasdaq, I continue to defend the same principle:

Don't trade what you think will happen. Learn to recognize what the market is showing.

Because at the end of the day, Nasdaq isn't afraid of news.

She reacts to surprises. And the trader needs to be prepared to deal with them.

Estéfano Santos is a trader specialized in the American market, with more than 10 years of experience at Nasdaq, and creator of the Confirmation Clock methodology.

Transparency notice: this column is written by Estéfano Santos, from X-Trader Academy, the company that maintains The X-Trader News. The text is informative and educational in nature and does not constitute investment advice.

Automatically translated from Portuguese.