Money
& Investing 
The Mystique of Stock Market News,
Tips to Handle the Good,
the Bad and the Ugly
If there is any one thing that can rattle an investor one way or another, it is news.
News about international or national events or about individual companies can cause a stock’s price to move sharply one way or another. A lot of money is often at stake on the news.
Dow Jones, Reuters, Barron’s, television stations such as CNBC and Fox and web broadcasts constantly pour out news and commentary that can cause a stock to jump one way or another. It takes a smart investor to know how to sort out the situation.
I remember in my younger days being a writer with Reuters covering an analysts' meeting in Philadelphia. The CEO from Atlantic Richfield Co. made a comment that was not in his prepared text. He said that, once oil would begin flowing from Alaska, Atlantic’s earnings should double in a few years. I tore out of the meeting to the only phone booth on the floor -- I had cased the place. I got there, and, then, a reporter from Dow Jones caught up with me and tried to muscle his way into the booth. I won! Such is the fierce competition for news on Wall Street. eSignal provides a very good tool for investors to track news. It can be found under the select field for headings for a quote page. It is called “Headline Count”. With this tool, you can call up the news headlines and stories for any stock and even set a sound alert. It is a great tool. You should always check the news on your stocks, especially prior to the opening. There is an old saying that the news is not the news. The news is the way a stock responds to the news. The reason for that is because the stock market is a discounting mechanism. Sometimes, “smart money” moves in, ahead of the news, and will sell on the “good news.” So, the obvious play of going long on good news or even short on bad news does not always pan out. It is always a good idea to study a stock’s chart to see if it was already running up prior to the good news or moving lower prior to the bad news. One sharp money manager told me one time that he follows the “Roach Theory”. He said it this way: “If there is one bad news announcement from a company, there is a good chance there will be more.” Thus, he plays on the idea that, if you see one roach, there are probably more. It is good to keep this idea in mind. Of course, companies will try to put a positive public relations spin on the news, but a smart investor should be wary. An important basic guideline when trying to interpret stock news is to know the market and economic environment you are in. In a bull market, company news tends to be mostly bullish; so are the forecasts and so is the way most stocks react. In a bear market and weak economy -- as we have now -- a bull needs to be extremely careful. That is because earnings and forecasts have a tendency to disappoint, and, in some cases, the stock will drop for seemingly no logical reason at all on a “neutral news item”. It is quite a shock to the novices among us. They soon get the feeling they are walking in a mine field. They are! In late March, Robbins & Myers Inc. (RBN) reported earnings that topped Street consensus estimates, and it raised its year forecast. The news came in after the NYSE close. In the aftermarket, the stock jumped 2 points to 42. However, when Robbins opened on the NYSE the next day, it nose-dived to as low a 32.70 -- almost 10 points.
One of my favorite plays is buying the stock of a company that reports quarterly earnings that top the highest estimate on The Street. However, even here, the best strategy is to put the buy at a certain point above the prior price. That means, if the news is good -- and I mean really good for the stock -- it will respond by rising in price. Afterwards, there is a good chance it will trend higher as analysts raise estimates and, in some cases, put out recommendations.
In April, Zoll Medical Corp. (ZOLL) reported net for the fiscal second quarter (March 30) jumped to 27 cents a share from 15 cents a year ago. The highest estimate on The Street was 20 cents a share. It was a bullish news surprise.
Zoll’s stock reacted bullishly, too. It gapped higher at the opening from 25.09 to 28.69. It ended the day up 5.89 at 30.98, a 23 percent gain for the session.
It is very important to have a calendar and know when the companies in your portfolio will report earnings or make any kind of pre-announcement. As one top investor said, “If you snooze, you lose.”
You also need to be aware of news from companies that are in the same industry group as the stock that you may hold. Often, good or bad news in a major company could trigger heavy buying or selling in other stocks in the same group.
There are, of course, other finesses when it comes to interpreting and acting on a stock’s news. I believe it is always better to err on the side of caution rather than take chances. You can always come back and play another day. Also, beware of rumors and puffy stories about a cheap stock for a company with the next wonder product.
Mr. Fasciocco’s is publisher of Ticker Tape Digest at www.tickertapedigest.com. He is a contributing writer for several publications. To get a one-week free trial subscription to the Ticker Tape Digest Professional Report, which comes out daily with a midday stock market video show email: freetrial@tickertapedigest.com. Mr. Fasciocco can be reached at leo@tickertapedigest.com
