I was having lunch with a trader friend of mine. We had an interesting discussion about trading on news or on news numbers – consensus.
I have always thought that if an obvious better-than-expected news comes out, the price will probably go up. Or, if the news numbers exceed the consensus numbers, the price will probably go up. My friend has an interesting opposite view. He thinks that because of market positioning, this “hypothesis” is not necessarily true.
1. The consensus are given by economists not traders. The consensus numbers do not take into account of market positioning. For instance, people may be already buying before the good news but the consensus numbers (or the economists) do not know that. So, after the good news, there is no more up movement.
2. Some major players may already have long positions and take advantage of the good news to sell off to close thier positions. So, instead of going up after the “obvious” good news, the price goes down.