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THE MARKET WHISPERER 43 1

Following Up on “Stocks in the News”

In addition to stocks you have identified through your watch list, you also
need to keep an eye open for “hot” stocks from the previous day and add
them to your daily list.

Don’t make the mistake that the bulk of the public makes: don’t think,
even for a moment, that there’s any simple way to profit from shares that
trend up quickly because of some announcement, or that crash because of
bad news. Usually, these are stocks that will start the day with a gap and
the ability to move either way, sometimes completely against all logic. In
principle, they are unpredictable, but sometimes a good technical entry
point can be found and the resulting move can be strong because of the
interest generated by news.

When a significant article appears on a specific stock in such prestigious
media as the Wall Street Journal, and you make the mistake of buying the
stock along with millions of others, you no longer have any advantage as
far as price. Will a million readers all make good profits on the same stock?
How will the market react to the news item? Will the price go up or down?
One guess is as good as the other. In most cases, a stock in the news has
already seen its uptrend prior to any public announcements, based on
insider information or the grapevine. If you are on either of those radars,
you have an advantage. If not, forego the urge to buy.

The well-known catchphrase “buy the rumor, sell the news” alludes to
the principle where the herd buys on hearing the news and therefore the
herd loses. The ones who profit are usually those who break the law. They
have received information from a friend inside the company, or had access
to the company quarterly report printed some few days before the official
publication. If you thought the stock market does not operate like this –
think again. Manipulation and corruption abound in such subtle ways that
the regulatory bodies simply cannot catch the criminals.

In that case, should we buy a stock in the news because of an analyst’s
recommendation or removal of recommendation? Do analysts know how
to choose good stocks better than you do? Every year, research is published
that examines the outcomes of analyst recommendations. Can you guess
what your situation would be if you based yourself on the analysts? It’s a
certain way to lose your money.

If so, why should you be scanning for stocks in the news? I read the news
for a different purpose altogether: I want to know what the herd is up to. I
want to understand the herd, but I would never operate automatically the
way it would expect me to. I want to know which stocks are in the news so