Part Four: Red Light, Green Light

Part Four: The Red-Light, Green-Light System, by Wade Cook


By now you should have picked up on the important quarterly news periods. It helps sometimes to lay out a timeline or picture of the process. Before I do so, let’s look again at a few things.

  1. There are no set dates on which all companies start announcing newsy things. The dates vary. They are different because the board may meet at odd times. After the board meets the company may still make no announcement for several days or even weeks.
  2. Many companies make very few pre-announcements, if any at all. Some make a lot. The announcement that start about two weeks before the quarter end, are all from news, and other sources, not the company. Often you’ll hear, “Well, we’re entering the earnings season,” meaning that news is about to come out. Some people “get it” on this part of the whole process. What you’ll never hear from TV and newspaper reporters is this: “Well, we’re leaving the earnings reporting season.”

Before I go on to (3), let me tell an interesting story: We were having our speaker training two-day session in March, actually the Ides of March and the day after. It was in Seattle. We were discussing Microsoft. It’s on everyone’s mind in Seattle, as it’s a Northwest company. There are news reports on it almost daily in our region.

The stock had been floundering from the middle of February through that time. I was explaining this whole new “news—no news” concept to our instructors. After awhile, the subject of Microsoft came up. It was about 9 or 10 A.M. on Monday. I pointed out that the stock was down and had been stagnant for a few weeks. I said, “Microsoft needs March 15th. Oh, it is March 15th! So the news announcements should start soon.”

Shortly, news came out over the wire about the company laying a foundation to break up into five divisions in anticipation of a lawsuit settlement with the Feds. The stock went up a couple of dollars. A little while later there was more news. This time they announced that they might enter an agreement, or that they were in talks to possibly end the lawsuit. Up another dollar or so.

The next morning, March 16th, the word on the street was that they were going to blow away their numbers—meaning they were making more money than expected. All in all the stock was up something like $7 to $8 in those two days. I looked at my great instructors and said, “Seeeeeeeeeee!”

It doesn’t take a genius to figure out that if there’s bad news, especially about earnings, or no news, that the stock will go down. Anticipation and expectation of news reports play big part in this process. If there’s good news or rumors of good news, the stock reacts accordingly. The old expression, “No news is good news” is out the window here. It’s the opposite now: “No news is bad news” is more like it.

This leads up to number (3).

  1. A lot of stock movement depends on the quality of the news. At the time of this writing our economy is slowly picking up. Many companies are earning a lot of money. A few are struggling. My guess is that 30% of today’s news is bad and about 70% is good. This will change.

So with a lot of good news hitting the streets, why do some stocks go down? One answer is that many investors think that the company can’t keep up this level of profits. The marketplace is a giant auction. A stock goes for what someone will pay for it. Built into this are many factors, and one of the most important is anticipation of future earnings growth.

Check the quality of the news. Watch for news on one company and how it affects others in the same field. Observing this will let you see many buying and selling opportunities.

  1. Not all companies follow the same exact time schedule. Many space out their announcements over a few days. Many make all of the news announcements at one time.

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