Traders,

In Nassim Taleb’s book Fooled by Randomness, he tells a story about financial news headlines during the Iraq war. I don’t remember the precise news (it may have been Saddam Hussein being captured), but the takeaway was that price drives narrative, not the other way around.

If you had asked me what the narrative was for this week, my response would have been different yesterday morning than today. As of yesterday morning, stocks had been resilient in shaking off the hotter-than-expected CPI and PPI reports. Morning weakness was bought up nearly every day of the week. Had we closed strong on Thursday that certainly would have been a fair takeaway: Stocks resilient in the face of concerning inflation news.

But, things changed late on Thursday and this morning. Prices rolled over. Now the narrative is that stocks are struggling as inflation woes return. Consider this a reminder that it’s not the news that matters, it’s the reaction. The price response is what writes the headlines, not the other way around.

Chart of the Day: Russell 2000 ETF (IWM)

Stocks gapped lower in 4 of the past five trading sessions. Yet bulls quickly swarmed to buy up the weakness. This was the bullish tale that could have been crafted yesterday mid-morning. Unfortunately, things have changed.

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