Sell on the Sound of the Victory Trumpets

I read this article a while ago. I think it's quite good tip for a beginner like me.

Here it is, it's extracted from:
Lord Rothschild's Investment Advice by D.R. Barton, Advisory Panelist, Investment U:

Sell on the Sound of the Victory Trumpets

It's useful to understand the market this way: It acts as a round-the-clock valuation mechanism. It constantly asks the question, "What is the value of Event X in the future?" And it immediately answers that question in the form of a price.

The event in question may be a company's earning report. The market would ask:
* What is the likelihood that the company will exceed its earnings projections?
* What is the likelihood that it will underperform?
* What would either of those events mean in terms of the stock price?

As you see so often, with every little hint of better performance, stock prices jump. And with any suggestion of a letdown, prices drop. All of this happens on rumors and inference.
The end result? By the time earnings are actually announced, the stock market has already digested almost all the possible information about the earnings announcement and valued the stock accordingly. So the only way the stock's price will move significantly is if there is a surprise.

Then there is the "myth of good news" - another factor that often shocks people. For example, the stock's earnings report is released, showing that the company met expectations, earning five cents a share. The public thinks this is good news and expects the stock to rise. But in a pattern we see over and over again, the stock may move up for a short while, only to start dropping, despite the good news. Why?

Because the news was already calculated into the price by the markets valuation mechanism.
The good earnings were expected. The price had already been adjusted to take those earnings into account. And when the company announced that expectations were met, there was no new good news. So any chance for even better news is lost and the price trickles lower.

The Key to Understanding The Stock Market's Reaction to Good News

So next time good news hits the stock market and the share price still goes down (usually after a very short spike up), you'll know why.
Here's the key: If the stock market has already anticipated good news, the actual news will have little effect on prices, or will even have a negative effect.

To clarify this, let's look at a couple of examples:

End of War: The classic example comes following the cease-fire in the Vietnam conflict. After prices spiked briefly, they headed down. While the ceasefire was good news, it was expected. Lord Rothschild's advice was spot-on again...

End of Federal Reserve Tightening: Jason Goepfert, the excellent sentiment analyst, has conducted some compelling historical research on what happens after the Fed stops raising interest rates. In the six months after the end of a tightening cycle, there is strong support that shows stock prices dropping. So be aware that one of this year's most anticipated events (the end of the Fed's interest rate hikes) may bring more disappointment than expected.

Here's what you need to remember: While you might expect that the stock market's reaction to good news would be to soar skyward, if that news was expected, the euphoria is usually short lived and brings only a temporary spike to the market and prices. So don't get caught up in the emotions of the moment when the good news - which everyone was expecting - finally comes.

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