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The media's influence on sentiment is a constant frustration. There is no shortage of equity analysts, strategists, and other experts proclaiming they know what the markets will do next. Unless they present evidence like historical chart patterns, they are simply guessing at a bullish or bearish outcome. However, their guesses affect sentiment, and sentiment has a way of building momentum. Even without much evidence, sentiment can create a tidal wave of buying or selling – in both directions.

For those of us who prefer to let the facts guide our decision process, we must pay extra attention to sentiment. As any technician will tell you, chart patterns often change, and at the moment you least expect it.

Media influence on sentiment can create market bubbles

This is especially true when the media latches onto the latest and greatest story and presents something that is too good to believe. Take artificial intelligence or AI. The stories on AI have been coming frequently.

Stocks in the AI group have suddenly gone parabolic. The hype reminds me of the dot.com bubble in the late 1990s. I remember that period well, as I made a nice fortune inside that bubblicious period. But eventually, it came all crashing down, and I suspect the same thing will happen with AI. Remember what happened with the cryptocurrency bubble? It wasn’t a pretty ending.

I’m sure there are plenty of good things happening with AI, but there is a limit to how far sentiment can drive stocks up. Once sentiment changes, the bubble will burst. When the music stops, you may not have an exit.

Many investors and traders watch the financial media for clues of what may happen in a future timeframe. There’s nothing wrong with listening to others and learning their point of view. But at the end of the day, follow the chart patterns, technicals, and media influence on sentiment. Avoid the hype and let the markets tell you how to invest and trade.

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