It is common to see bad news for the underlying company whenever the stock is in down trend. Likewise it is common to see good news for the underlying company whenever the stock price is near highs or making new highs. It's almost always like that. Have you thought why it happens like that?
There are also situations when what seems to be a bad news but the stock does not go down. Why?
Before we start talking about these topics lets also remind ourself that on the market 95% or so people are loosing money and 5% are more or less steadily making money.
It is true for every industry: majority need to pay to minority. Otherwise the system would not exist. It cannot be possible that minority would loose and the majority would gain (in $ amount). The whole town cannot consist of barbers simply because some of them will have to die or have to change profession. There simply will not be enough customers for all barbers to survive. In order for people to be successful we need to have a few barbers, a few plumbers, a few bus drivers etc. Everyone knows what happens if there are to many doctors or programmers. We've seen those days before.
Same goes for a stock market. Majority of people HAVE to loose money in order the minority to continuously profit.
Now let's go back to the original question. Why bad news in the stock price bottom and good news always whenever the stock tops out?
General public execute their trades by following news for the underlying company or market in general. News sources like WSJ, MSNBC, Bloomberg etc. People buy on good news and sell on bad news.
But isn't it cheaper to buy low and sell high? Yes, in fact some books even suggest you to keep on doing so.But, let's see:
Low price is always when the news is bad.
It's always good news when the price is too high.
Seems like it's always wrong to buy low and always expensive to buy right.
Something is not right here...
And we're coming to the main idea here. General public is fooled and have to be fooled with news releases by mass media in order for minority to live a dream life.
So what is a logic, why they are doing so ... I mean, the news thing.
Whenever the bad news is released - general public is selling under the influence of "highly reputable" analysts. And the minority is buying, accumulating shares. And likewise whenever they need to dump the shares - the good news are released.
Now, how are they able to do so? Isn't is a real news we hear on TV?
Well there could be number of ways. First of all you could just hire some dude, portray him or her as an analyst in the field of "ultra nano supa dupa particles" ... or oil and tell him or her to say something positive or negative. Is it a news, like an event news? No. But would this piece of PR influence general public? To some degree.
How about earnings. They are the real thing right, an indication of company results in last quarter or year. How can we play with that data? Well, earnings are an accounting. And you certainly can play with accounting. If your profits are good, but you need a earnings release to sound bad you could invest some cash in R&D or buyout some company, pay bonuses to executives etc. As a result of these activities your end of quarter cash pile will dry up or even turn negative. "Holly molly, this company is in debt, I need to get out, now!"
We will continue this topic.