Discussion in 'Trading' started by NoProblem, Mar 1, 2008.
Sorry - would not let me delete initial post - see post below.
When it comes to trading earnings / news, "Buy the rumor, sell the news" is the #1 Stock Market Axiom of all time - and this axiom is what this posting is all about.
The inverse is also true, namely, "Sell the rumor, buy the news".
The reality is that these axioms are, in my opinion, reliable over 75% of the time - depending on market conditions.
So how do you know when to buy the news or sell the news?
Well, I wish the explanation was a simple one, but this is, after all, the stock market we are discussing here and I have no intention of writing an entire book on the subject.
First thing to realize and fully understand, is that trading earnings news is ALWAYS purely speculative - IOW, very high risk!
One reason this trade is high risk is because news can move stocks 3, 10, 50 or more percentage points - against you - so you should plan ahead as to what you'll do to escape with as little damage as possible when the trade goes against you.
This risk only increases when, for whatever reason, you cannot trade pre or after market - which is when most of the earnings / news hit's the wire.
Below, I have taken the time to provide two recent examples of MY INTERPRETATION of what the Pit Traders use in regards to: "Buy the rumor, sell the news" - and how I trade it! YMMV!
CNBC said TOL earnings news was the worst in it's entire history!
As for DECK, GREAT NEWS!! Here is an actual headline:........... Deckers Outdoors Puts 4Q Op EPS At $1.82 Vs EPS 94c.
Now, keeping the market axiom always in mind, please see the links below.
See TOL's chart: http://i250.photobucket.com/albums/gg260/NoProblem007/TOLNews.jpg
See DECK's chart: http://i250.photobucket.com/albums/gg260/NoProblem007/DECKNews.jpg
HHMMMmmm, both good and bad news got sold!
One reason is because news is news is news is news - period! Under certain market conditions, great news or horrid news - is still, just, "news".
I am purposely not going into great detail here, because I think the charts might say more than me writing more of an essay than I already have.
Separate names with a comma.