The Positive Power of Bad News
July 15th 2007 09:33
In the field of academic finance, Event Studies compose a major area of research particularly for investigating market efficiency and information dissemination. Empirical evidence have shown over the years that positive and negative news have the same corresponding effect on stock prices, usually with reaction time lag.
For instance good news are usually followed by positive stock price reaction and vice versa. How much it rise or falls depend on the rate of information absorption by investors and quality of the news content.
However when stock price react positively to negative information then it could be an indication of buy signal. The reason being the price of the stock, before the dessemination of the negative information, has already incorporated the bad news. How? that is another story. But in other words, the opposite reaction is an indication of the stock already being "sold out" which means the stock has already bottomed out and its a bargain time load up, if the future prospect of the company warrants it.
In what could be a live experiment, Tiernan Ray of Tech Trader Daily suspects that Motorola (MOT) shares are "sold out" and could be in for a rebound despite the company's handset division is in for a non-profitable year.
Jeff Clark of The Growth Stock Wire in his analysis: "The sellers are exhausted, and just a little bit of buying interest can spark a rally in the stock. I don’t know if that will turn out to be the case with Motorola. But I’ll be watching it closely today. If the stock can manage to hold above $17.50, then it will probably be sharply higher over the next few months."
Perhaps you could join in as a witness by including Motorola in your watchlist. It could be a decent strategy after all.
For instance good news are usually followed by positive stock price reaction and vice versa. How much it rise or falls depend on the rate of information absorption by investors and quality of the news content.
However when stock price react positively to negative information then it could be an indication of buy signal. The reason being the price of the stock, before the dessemination of the negative information, has already incorporated the bad news. How? that is another story. But in other words, the opposite reaction is an indication of the stock already being "sold out" which means the stock has already bottomed out and its a bargain time load up, if the future prospect of the company warrants it.
In what could be a live experiment, Tiernan Ray of Tech Trader Daily suspects that Motorola (MOT) shares are "sold out" and could be in for a rebound despite the company's handset division is in for a non-profitable year.
Jeff Clark of The Growth Stock Wire in his analysis: "The sellers are exhausted, and just a little bit of buying interest can spark a rally in the stock. I don’t know if that will turn out to be the case with Motorola. But I’ll be watching it closely today. If the stock can manage to hold above $17.50, then it will probably be sharply higher over the next few months."
Perhaps you could join in as a witness by including Motorola in your watchlist. It could be a decent strategy after all.
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