Trading Earnings/ News

Discussion in 'Trading' started by NoProblem, Mar 1, 2008.

  1. 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/...007/TOLNews.jpg

    See DECK's chart: http://i250.photobucket.com/albums/...07/DECKNews.jpg

    HHMMMmmm, both good and bad news got sold!

    Why?

    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.


    Happy trades!
     
  2. WTF! Links still don't work??

    I'll try this........... copy and paste

    TOL: i250.photobucket.com/albums/gg260/NoProblem007/TOLNews.jpg

    DECK: i250.photobucket.com/albums/gg260/NoProblem007/DECKNews.jpg
     
  3. you buy before earnings and you are going to get wiped out. DON'T DO IT ! its irresponsible and a tried and true trader would never attempt it. its 100% gamble.
     
  4. i've seen stocks go straight up into an earnings report and still gap up another 10 points on strong earnings and guidence. you cannot rely on "sell the news" or anything else when it comes to earnings. nothing makes sense. as i said,stay away.
     
  5. I agree!

    Regardless, the unknowing traders will still take the chance imo.

    Plenty of times (not always) when the news gets bought, it gets bought when stock is at or near support which often means that the rumor was sold.

    Check out the after hours news action vs where the stocks closed Friday for BA (lost the award) and NOC (won the award that BA lost)

    BA trending up prior to news, NOC selling off prior to news.

    Happy trades!