Every day seems to bring another revelation about how well or how poorly the market is doing—depending on your perspective. I dislike saying this but your viewpoint almost always depends on your political persuasion. Yesterday it was the information released by China; today it was more on Apple, and tomorrow the news will be speculation about the upcoming Star Wars movie. One company misses their numbers, another one makes almost unspeakable profits, but although they're still making millions, er . . . billions, their top-line revenues slipped a little, and the stock goes down. It can be confusing. One problem is the the stock market seems to think in code, and up is down and down is up. I see why the market reacts a certain. The big guys are always trying to guess what the little guys will do. Vice Versa, the little guys are trying to second-guess what the big funds are doing.
Let me start with another observation. For years I touted an expression that gives a lot of meaning, or at least some understanding to why prices for stocks are what they are—and more importantly why they move. Let's start with this basic premise. Here it is: A STOCK PRICE TODAY IS BASED ON THE ANTICIPATION OF FUTURE EARNINGS. That's it. The marketplace is like a giant auction. It’s not about what was, but what will be. It’s about the future. People buy a stock today to get at the tomorrow’s earnings.
Recently, Apple missed their numbers. They were shooting for more top-line growth, and while spectacular (indeed, unprecedented), the numbers disappointed an analyst somewhere. The stock reacted wildly. It was down $8 of so when I last checked. That doesn't make sense to me. So here's my first criticism of the way these people think. It is that the market may determine the prices, but the market usually is wrong. It errors to the upside or to the downside. It's hard to figure.
It over-reacts to the smallest of news items and even indulges poorly to nuances. Then before the dust settles, it under-reacts to really great, earth-shattering news. So, what next? Watch this stock and this market recover.
There are trading opportunities everywhere. Choose wisely.