news-reaction-failure-analyzer

News Reaction Failure Analyzer

Overview

Implements step 2 of Jason Shapiro's COT contrarian process: once a market is flagged as crowded (cot-contrarian-detector, step 1), check whether it FAILED to react to news that should have rewarded the crowd. A crowded-long market that doesn't rally on genuinely bullish news, or a crowded-short market that doesn't sell off on genuinely bearish news, is the core behavioral tell that the crowd has run out of buying/selling power — this is the confirmation step that turns "crowded" into a contrarian setup candidate (steps 3-5, still manual: price-action confirmation, entry, exit).

Why this isn't a naive failure-ratio check: an earlier design flagged "news failure" whenever fewer than half the relevant events "responded" — but under pure noise, roughly 69% of individual events fail to respond by chance, so that rule would CONFIRM on random noise 48-83% of the time depending on sample size. This skill instead requires the market to have moved significantly against the crowd's favorable news (a drift- significance test with a Monte-Carlo-verified null false-positive bound), never merely "didn't respond enough." See references/news-failure-patterns.md for the full statistical rationale.

When to Use This Skill

English:

• "Did the market shrug off [event] even though [asset] is crowded long/short?"
• "Run a news-failure check on [symbol]"
• "Is [symbol] confirmed for a Shapiro-style contrarian setup?"
• After cot-contrarian-detector flags a market CROWDED_LONG / CROWDED_SHORT and the user wants to move to step 2

Japanese:

• 「この市場は好材料に反応しなかった？」
• 「COTで偏っているこの銘柄のニュース失敗を確認して」

Do NOT use when:

• The market isn't crowded (NEUTRAL classification) — this skill refuses fail-closed without an explicit --direction override
• No curated events JSON exists yet — WebSearch must run first (Phase 2 below); never fabricate events or URLs to get a verdict

Prerequisites

• FMP API Key: Required. Set FMP_API_KEY or pass --api-key. Used for price data only (stable/historical-price-eod/light) — coverage varies by symbol; see references/price-source-map.md.
• Python 3.9+ with requests installed.
• WebSearch access to curate the events JSON (Phase 2). Skill degrades gracefully without it (states the limitation; never fabricates events).
• Optional: a cot-contrarian-detector JSON report (--detector-json) to auto-resolve symbol + direction, or supply --direction explicitly.

Workflow

Phase 1: Obtain symbol + direction

From a cot-contrarian-detector report (--detector-json, symbol looked up in markets[]) or directly from the user (--symbol + --direction). A NEUTRAL classification, a symbol missing from the report, or a report older than --max-detector-age-days (default 10) all refuse fail-closed with a specific reason — only an explicit --direction overrides.

Phase 2: Curate the events JSON via WebSearch

Search news in the evaluation window (--window-days, default 10) using the 4-tier source hierarchy (issuer/primary → SEC/official stats → wire → portal — see references/news-failure-patterns.md). Write findings into an events JSON from references/news-failure-patterns.md's template — event, event_time (ISO8601 with explicit UTC offset), source_url, source_tier, expected_impact (BULLISH/BEARISH) per event.

Never fabricate events or URLs. WebSearch unavailable → state it explicitly; proceed without an events JSON only if the user accepts an INSUFFICIENT_EVIDENCE result (reason no_events_provided) — the CLI never raises an exception for a missing events file, it always exits 0 with a documented reason.

Phase 3: Run the CLI

python3 skills/news-reaction-failure-analyzer/scripts/analyze_news_reaction.py \
  --symbol B6 --detector-json reports/cot_crowding_2026-07-12.json \
  --events-json reports/nrf_events_B6_2026-07-12.json \
  --output-dir reports/

The script fetches the price series (documented fallback chain — futures symbol first, ETF proxy if 402/restricted or rows == 0; see references/price-source-map.md), computes effective dates / returns / z-scores per event, clusters events whose 3-trading-day windows overlap (independence guard), and synthesizes the verdict.

Phase 4: Present verdict + handoff

Present the verdict, aggregate stats (drift_stat, responded_ratio), and the evidence table (per-event returns/z-scores/reaction labels, with any dropped_events reasons shown — never silently hidden). If a proxy (run_context.proxy_used) was used, note the tracking-error caveat.

Emit a handoff block for contrarian-setup-gate (#241, not yet built):

{"news_failure": {"verdict": "CONFIRMED", "confidence": "HIGH", "report_path": "reports/nrf_B6_2026-07-12.json"}}

Output

• JSON: reports/nrf_<symbol>_<as-of-date>.json — schema_version, symbol, direction, expected_direction, actual_reaction (FAILED_TO_RALLY/FAILED_TO_SELL_OFF/RALLIED/SOLD_OFF/ MIXED_REACTION/NO_DATA), verdict, confidence, relevant_events_used, aggregate (mean_z3/drift_stat/responded_ratio), evidence[], dropped_events[], run_context.
• Markdown: reports/nrf_<symbol>_<as-of-date>.md — human-readable verdict, aggregate stats, evidence table, dropped-events table, proxy caveat (if used), and methodology footnote.

Guardrails

• CONFIRMED is not a trade signal. It confirms step 2 of 5 — price- action confirmation (step 3), entry (step 4), and exit (step 5) are still manual and still required before any position.
• INSUFFICIENT_EVIDENCE never advances the pipeline. Fewer than --min-events (default 3) usable relevant event clusters, a missing detector report, or a detector vintage (data_date) that's missing, unparsable, dated after --as-of, or older than --max-detector-age-days (stale), a NEUTRAL classification without an explicit override, or no working price source all produce this verdict — never a crash, never a forced call on inadequate data.
• COT publication lag. COT data is 3-9 days old by the time it's read (see cot-contrarian-detector); news-failure evidence should be read in that context, not as same-day confirmation.
• Counter-direction events are context only — shown in the evidence table but excluded from the verdict (only events whose expected_impact matches the crowd's expected_direction count).
• Proxy-based prices are noted, not hidden. When an ETF proxy was used (run_context.proxy_used), the report says so — tracking error, expense drag, and roll-timing differences make the reaction-direction read approximate, not exact.
• Residual statistical risk under extreme correlation. The verdict's null false-CONFIRMED rate is hard-verified under i.i.d. noise (<8%) and under a realistic residual-correlation stress (AR(1) ρ=0.1, <10%). Under an intentionally extreme correlation stress (lag-1 ρ=0.3 across non-clustered event windows — roughly 10x liquid-futures empirical autocorrelation), the measured null rate rises to ~11-13%. This is a documented v1 limitation, not a silent gap — see references/news-failure-patterns.md for the full numbers. Users who want the stricter <10% margin even under that stress can pass --drift-z 1.75 (at the cost of missing some genuine news-failure signals, not just noise).
• Not investment advice. Research/educational purposes only.

Resources

references/news-failure-patterns.md

Full methodology: what qualifies as a relevant event, the 4-tier source hierarchy, worked examples, the events-JSON curation guide + template, and the verdict-threshold rationale (why drift-significance, not a naive ratio; the Monte-Carlo-verified null bounds).

references/price-source-map.md

Per-market price-source fallback chain, verified/402/0-rows status (live- probed at implementation time), ETF-proxy caveats, and markets with no viable source (documented no_price_source cases: VX, ZQ, HO, all agri on this key).

When to Load References

• First use / explaining the methodology: Load references/news-failure-patterns.md
• Explaining why a market has no verdict (no_price_source): Load references/price-source-map.md
• Regular execution: References not needed for the CLI itself — needed for Phase 2 (events curation) and for explaining results to the user