Buy the Rumor, Sell the News

2018-07-13 | Allison Ostrander

Simpler Summary

The phrase, buy on the rumor and sell on the news, is all too common on the market floor. There’s certainly some truth to the saying as news and even rumors can affect the market. For instance, this week started with talks of more tariffs, and we ended the week with lacking numbers on consumer sentiment reports. Some traders focus on trading off the news and often times find themselves chasing their entries as the price has already started to move.

To prevent chasing, the key to getting in before the take off is the charts. Often times a trader can look at the chart and find setups for trades getting ready to move. Then the catalyst for the move on the chart in turn can come from news or rumors. Identifying these setups early allows a trader to jump in at a better entry. In turn, this allows them to not worry about chasing prices.  Looking back at a 5 year chart, a trader may not know the news event that caused a particular move, but it’s not necessary if they followed the charts to determine the setup and entry. Often times traders can then look to close out for nice profits while others are still trying to scramble to get in off the news event.

A great example occurred this week in ATVI. Last week and earlier this week, ATVI was showing a nice squeeze setup on the Daily Chart, with other indicators pointing to a rising bias. Later in the week news came out that ESPN made a deal with ATVI to start showcasing some of their competitive games, specifically E-Sports. This ended up being the catalyst that allowed ATVI to take off from the squeeze. Had you got in when the entry first presented itself, you were then taking profits while others were jumping in.

As shown above, news can be an important catalyst for trading. However, always keep an eye on your charts, as this will present you with entries to maximize your profits.

With that said, every Friday, I like to check in with the Simpler Trading team to find out what their thoughts were on the market this past week plus a look ahead to the next. This week in particular I think it’s especially important given the holiday on Wednesday. Please take a look at their sentiments below to discover more about their overall market outlook.

Simpler Sentiment

Bruce  Marshall— We have had an amazing run in the indexes with the S&P rallying over 100 points in the last 2 weeks. I have been saying that it is critical that we get over the SPX 2800 level and we did cross it, although it was a weak showing. We are in a market that will be determined, at least in the short run, by earnings. Over the next several weeks I am anticipating good earnings and higher prices in the indexes. The wild card is whether earnings will be good and also the nagging trade war concerns. How to play it? I have been and continue to be bullish, however as we go higher, I am ratcheting up stops and watching for signs of weakness in earnings. Stay bullish and cautious. have a great weekend.

Carolyn BorodenI’m a cautious bull in the S&P.  The chart is bullish….we held the low made on the 28th and we are approaching my minimum target at the 2823 area.  I’m cautious because I have time resistance coming up early this next week to the current rally. I would ratchet up stops as you go because of this.

Henry Gambell — There’s several things that come to mind about this week’s trading, but two that immediately come to mind are how helpful the Stock Trader’s Almanac can be and the second is mastering taking profits with bigger positions. The Almanac was helpful to come into the week and expect weakness on Tuesday/ Wednesday, then the bullish day on Thursday and ideally continuation into Friday. That all went right according to plan, but then to that second point, I wish I would’ve sold a little more on Thursday’s highs. Next week is monthly expiration, so enjoy some down time this weekend and I look forward to discussing the nuances of next week with you on Monday!

Danielle Gum  — JPM, C and WFC kicked off the meat of earnings season today, with the big banks always starting the round. All eyes are on the banks here, as the financial sector has given up the bullish trend of 2017 in early February and hasn’t been able to recover. Last quarter, the sentiment surrounding the banks was that a strong earnings season could help recover the trend. Well, that did not work, and XLF along with the key bank stocks have continued in a bearish trend, repeatedly failing at resistance levels each time they try to recovered.

So, where do we go from here? Well, there is still a long road ahead for the bank stocks to recover. JPM, #2 weighted product within XLF, beat earnings and yes – is positive on the day as of 11am CT Friday morning, however up against resistance at the 50 and 200 simple, it is no where near the point of reversing this downtrend into an uptrend. C and WFC didn’t fare so well, and I see both of them trading lower in the near-term as well as the long term. Strong earnings for C and JPM wasn’t enough to reverse this bearish trend, and at this point, I’m not sure what will be, but the markets quiet reaction to these reports tells me that the overall market isn’t very concerned about them, either.

Henry Gambell says:

See the original setup HERE

Expert: Henry Gambell

Setup: Setup on HD

Update from Henry: The long call in HD is up about 20% and if you opted for the PCS, we’ve met the 50% credit as a suggested target