reasons why certain stocks move

Discussion in 'Trading' started by jslmust, Nov 10, 2002.

  1. jslmust


    Does anyone have any information as to why certain stocks will always react to good or bad news immediately? Does it depend on P/E ratio? Volume? EPS? a combination of things?

    I have noticed that some stocks will respond to a downgrade immediately on the open, where others will hardly move at all.

  2. trdrmac



    Probably the most important thing to learn as a trader or investor is the reason does not matter. THC is a good example. Two weeks ago it was a $50 per share, Friday $14.

    PE can be a reason, but a cyclical stock like GM would be the most dangerous when the PE was low. Reason Being, earnings are at a peak. However, a biotech company may not have earnings for 5 years, but the promise of a miracle drug can move the stock.

    Volume matters, a thinly traded stock would move quite a bit if it traded 10K shares a day and someone wanted to sell 100K shares in one day.

    News matters a lot, but it depends on what people were expecting. But this can be deceiving. People could be expecting great earnings from XYZ, so they buy the stock ahead of the earnings, and as soon as the great earnings hit they sell and the stock goes down.

    Finally, analyst opinions matter if the street sees them as valid. For instance, if Dan Niles upgrades INTC, that in my opinion will move it a lot more than if Abbey Joseph Cohen upgrades it. conversely in 99, I bet Cohen's upgrade carried more weight.

    There is not a concise answer to the question.
  3. trdrmac summed it up pretty well. The only thing I would add is that there are a group of stocks (often the semi's) that are often used by the hedge funds to quickly add exposure (or beta if you will) both long and short. Any news on them whip them around more than most because those guys are gun slingers.

    The other thing, he is absolutely right, every stock or sector has 1-2 analysts that are the ax analysts in the stock or sector and comments by those guys can move things substantially where as comments by another firm are shrugged off. If your not familure with the sector that you are trading you may not know the difference.

    There is an edge in knowing which stocks react more than others and why , but because it is always changing you totally got to trade what you see not what you think if stock doesn't move like you anticipate.

    just my 2 cents.