Bad News or "Good" Bad
News?
A) Layoffs
This is usually good for the company and its stock price because expenses will be reduced significantly and quickly. This should help increase earnings right away. It is not always a major warning sign; it could just be a reaction to a slower economy. It is one of the quickest ways a company can cut expenses if sales have not been meeting expectations.
B) Store Closings
This event often causes the stock price to go up for the same reasons as layoffs. However, this is not always the case. Closing stores actually requires a lot of money, and the positive effects of it do not take place immediately. This could be a sign that the company is truly in trouble at the moment. They probably have lower sales and higher expenses than they want, possibly due to a slowdown in the industry or the overall economy. The good news is that their management is being pro-active about maintaining profitability. Unfortunately, the stock price may go down for the next few months.
C) Firing of CEO or Company Official(s)
This may sound very negative at first, but it does show that the company’s board of directors was bold enough to take drastic actions to help the company in the long run. The stock price could go up or down after this announcement, depending on the situation. In some cases this event could be a sign of corruption that reaches beyond these individuals and there could be more negative announcements to come.
D) Market Scandals
Traders tend to frown upon corruption in the stock market. Mutual fund scandals that have occurred in the past few years and corporate corruption such as Enron are two such examples. If people cannot trust the stock market, why would they invest their hard-earned money in it? In these situations it is harder for the market to go up because there is a lower demand for
e) Market sentiment.
The price of the stock of a company is affected most of the time by the general market direction during a session. In a bull market, the stock price of most companies will rise and in a bear market the stock price of most companies will fall. One can gauge the market sentiment by looking at stock indexes or its future price movement.
f) The performance of the industry.
The performance of the sector or industry that the company is in also plays in part in determining the stock price of the company. Most of the times, the stock price of the companies in the same industry will move in tandem with each other.
g) Take-over or merger.
When a firm acquires another entity, there usually is a predictable short-term effect on the stock price of both companies. In general, the acquiring company's stock will fall while the target company's stock will rise.
h) New product introduction to markets or introduction of an existing product to new markets.
The introduction of new product to market is seen as a revenue enhancer for a company. This also applies to an existing product that breaks into new markets. Sometimes, the prospect of a new product introduction suffices to improve the stock price of a company
i) New major contracts or major Government Orders.
A company that is able to obtain new major contracts or major government order is expected to see a bull run in its stock price
j) Share buy-back.
The act of share buy-back by a company will reduce the number of share available in the open market. Due to the law of supply and demand, a reduction in share available for trading in this case will cause a drop in supply, this will normally help increase the share price
k) Dividend.
After the announcement of a dividend. The stock price may increase by an amount close to the dividend per share value. However, the stock price may drop on the ex-dividend date by the dividend per share amount. This is because anyone buying a stock on or after the ex-dividend date are not entitled to the corresponding dividend payment.
l) Stock splits.
Stock split in theory, should not have an impact to the stock price. However, it is generally observed that the stock price increases (after taking into account the increase in the number of share) after a stock split
m) Insider trading.
Insiders include CEO, COO, CFO, Chairman, board directors etc, who has first hand information about the operations and the financial status of a company. Therefore, the buying or selling of stocks by these insiders may add some good or bad news about the company
n) Choose the stocks with sustainable earnings per share (EPS). Other useful ratios/numbers to check include: dividend pay-out ratio,
price earnings ratio,
dividend yield,
price-to-book ratio,
moving average price.
You should only purchase the shares if its current price is below the estimated intrinsic value.
o) Analyze the qualitative factors of a company such as:
future outlook,
quality of the management team, industry attractiveness,
corporate culture,
business model,
competitive advantages, etc.
To gain an insight into a company's competitive edge, you can look at things like
market share,product branding, and the like.
p) Use a stock picking software to identify the stocks with bullish trend. Professional traders are much more successful because they have specially designed software that records the past stock movement and even give an optimum price at which the stock must be bought/sold to maximize the return.
Q) Look at the open interest on options chains for a specific stock to see how many people are planning on buying and selling and at what price. This basically serves as an opinion poll on the stock’s expected performance.
R) Always consider the amount of shares CEOs and other executives are buying and selling, to get an accurate picture of what is happening on the inside.
A) Layoffs
This is usually good for the company and its stock price because expenses will be reduced significantly and quickly. This should help increase earnings right away. It is not always a major warning sign; it could just be a reaction to a slower economy. It is one of the quickest ways a company can cut expenses if sales have not been meeting expectations.
B) Store Closings
This event often causes the stock price to go up for the same reasons as layoffs. However, this is not always the case. Closing stores actually requires a lot of money, and the positive effects of it do not take place immediately. This could be a sign that the company is truly in trouble at the moment. They probably have lower sales and higher expenses than they want, possibly due to a slowdown in the industry or the overall economy. The good news is that their management is being pro-active about maintaining profitability. Unfortunately, the stock price may go down for the next few months.
C) Firing of CEO or Company Official(s)
This may sound very negative at first, but it does show that the company’s board of directors was bold enough to take drastic actions to help the company in the long run. The stock price could go up or down after this announcement, depending on the situation. In some cases this event could be a sign of corruption that reaches beyond these individuals and there could be more negative announcements to come.
D) Market Scandals
Traders tend to frown upon corruption in the stock market. Mutual fund scandals that have occurred in the past few years and corporate corruption such as Enron are two such examples. If people cannot trust the stock market, why would they invest their hard-earned money in it? In these situations it is harder for the market to go up because there is a lower demand for
e) Market sentiment.
The price of the stock of a company is affected most of the time by the general market direction during a session. In a bull market, the stock price of most companies will rise and in a bear market the stock price of most companies will fall. One can gauge the market sentiment by looking at stock indexes or its future price movement.
f) The performance of the industry.
The performance of the sector or industry that the company is in also plays in part in determining the stock price of the company. Most of the times, the stock price of the companies in the same industry will move in tandem with each other.
g) Take-over or merger.
When a firm acquires another entity, there usually is a predictable short-term effect on the stock price of both companies. In general, the acquiring company's stock will fall while the target company's stock will rise.
h) New product introduction to markets or introduction of an existing product to new markets.
The introduction of new product to market is seen as a revenue enhancer for a company. This also applies to an existing product that breaks into new markets. Sometimes, the prospect of a new product introduction suffices to improve the stock price of a company
i) New major contracts or major Government Orders.
A company that is able to obtain new major contracts or major government order is expected to see a bull run in its stock price
j) Share buy-back.
The act of share buy-back by a company will reduce the number of share available in the open market. Due to the law of supply and demand, a reduction in share available for trading in this case will cause a drop in supply, this will normally help increase the share price
k) Dividend.
After the announcement of a dividend. The stock price may increase by an amount close to the dividend per share value. However, the stock price may drop on the ex-dividend date by the dividend per share amount. This is because anyone buying a stock on or after the ex-dividend date are not entitled to the corresponding dividend payment.
l) Stock splits.
Stock split in theory, should not have an impact to the stock price. However, it is generally observed that the stock price increases (after taking into account the increase in the number of share) after a stock split
m) Insider trading.
Insiders include CEO, COO, CFO, Chairman, board directors etc, who has first hand information about the operations and the financial status of a company. Therefore, the buying or selling of stocks by these insiders may add some good or bad news about the company
n) Choose the stocks with sustainable earnings per share (EPS). Other useful ratios/numbers to check include: dividend pay-out ratio,
price earnings ratio,
dividend yield,
price-to-book ratio,
moving average price.
You should only purchase the shares if its current price is below the estimated intrinsic value.
o) Analyze the qualitative factors of a company such as:
future outlook,
quality of the management team, industry attractiveness,
corporate culture,
business model,
competitive advantages, etc.
To gain an insight into a company's competitive edge, you can look at things like
market share,product branding, and the like.
p) Use a stock picking software to identify the stocks with bullish trend. Professional traders are much more successful because they have specially designed software that records the past stock movement and even give an optimum price at which the stock must be bought/sold to maximize the return.
Q) Look at the open interest on options chains for a specific stock to see how many people are planning on buying and selling and at what price. This basically serves as an opinion poll on the stock’s expected performance.
R) Always consider the amount of shares CEOs and other executives are buying and selling, to get an accurate picture of what is happening on the inside.
Important
Note
One of the main business factors in determining Stock Price is that stock's price are directly proportional to
company’s earnings, including the current earnings and estimated future
earnings.
News from
the company and other national and world events also plays a large role in the
direction of the stock market. Some examples of this are oil prices, inflation,
and terrorist attacks.
A commonly held belief
is that a stock-market boom is the reflection of a progressing economy: as the
economy improves, companies make more money, and their stock value rises.
When the supply of goods and services rises faster than the
supply of money the unit price of each good or service falls. George Reisman
offers us the critical formula for the derivation of economy-wide prices:
The same price formula noted above can
equally be applied to asset prices — stocks, bonds, commodities, houses, oil,
fine art, etc..
As Fritz Machlup states:
It is impossible for the profits of all
or of the majority of enterprises to rise without an increase in the effective
monetary circulation (through the creation of new credit or dishoarding)
There are other ways the market could go higher, but their
effects are temporary-
· An increase in net savings involving less money spent on
consumer goods and more invested in the stock market (resulting in lower prices
of consumer goods) could send stock prices higher, but only by the specific
extent of the new savings, assuming all of it is redirected to the stock
market.
· The same applies to reduced tax rates. These would be
temporary effects resulting in a finite and terminal increase in stock prices.
Money coming off the "sidelines" could also lift the market, but once
all sideline money was inserted into the market, there would be no more funds
with which to bid prices higher.
The only source of ongoing fuel that could
propel the market — any asset
market — higher is new and
additional bank credit. Neither
population growth nor consumer sentiment alone can drive stock prices higher. Whatever the population or sentiments, it is using a finite
quantity of money and it must be accompanied by the public's ability to
add additional funds to the
· If goods are produced
at a faster rate than money, prices will fall. With a constant supply of money, wages would remain the same
while prices fell, because the supply of goods would increase while the supply
of workers would not. But even when prices rise due to money being created
faster than goods, prices still fall in real terms,
because wages rise faster than prices. Obviously, then, a growing economy
consists of prices falling, not rising. No matter how many goods are produced,
if the quantity of money remains constant, the only money that can be spent in
an economy is the particular amount of money existing in it (and velocity, or the
number of times each dollar is spent, could not change very much if the money
supply remained unchanged). This alone reveals that GDP does not necessarily
tell us much about the number of actual goods and services being produced; it
only tells us that if (even real) GDP is rising, the money supply must be
increasing, since a rise in GDP is mathematically possible only if the money
price of individual goods produced is increasing to some
degree. Otherwise, with a constant supply of money and spending, the total
amount of money companies earn — the total selling prices of all goods produced
— and thus GDP itself would all necessarily remain constant year after year.
· The same concept would
apply to the stock market: if there were a constant amount of money in the
economy, the sum total of all shares of all stocks taken together (or a stock
index) could not increase. Plus, if company profits, in the aggregate, were not
increasing, there would be no aggregate increase in earnings per share to be
imputed into stock prices.
Under these
circumstances, capital gains (the profiting from the buying low and selling
high of assets) could be made only by stock picking —
· By investing in companies that are expanding market share,
· Bringing to market new products, etc.
Thus, truly gaining
proportionately more revenues and profits at the expense of those companies
that are less innovative and efficient.The stock prices of the gaining
companies would rise while others fell. Since the average stock would not
actually increase in value, most of the gains made by investors from stocks
would be in the form of dividend payments. By contrast, in our world today,
most stocks — good and bad ones —
rise during inflationary bull markets and decline during bear markets. The good
companies simply rise faster than the bad.
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