Sometimes the stock market can rally on bad financial news. There could be several reasons for this.
The first reason is that the stock market might have discounted the bad news in advance as investors believe that the stock market has hit a “bottom” and is going back up. Another reason could be that investors believe the bad news to be unusual and short lived, but have otherwise positive financial opinions of the stock(s).
13 April 2001, Washington Business Journal:
Many investors see such situations as bullish, since when a stock rallies on bad news it can mean that all the bad news is already “priced into” the stock.
Personal Finance: KCI Investing
By Other KCI Editors Published June 4th, 2001 Personal Finance Rating: Unrated
With corporate confession season progressing, investors are getting a bit more careful. It’s always a bullish sign if the market rallies on bad news.
Google Groups: microsoft.public.investor.discussions
From: Bernard Thomas
Date: Wed, 17 Nov 2004 14:31:32 -0700
Local: Wed, Nov 17 2004 3:31 pm
Subject: Market euphoria excessive?
They say in a bull market, stocks rally on bad news and in a bear market they tank on good news.
Investor’s Daily Edge
Friday Oct. 20, 2006
The Market is Never Wrong
By Charles Delvalle
An open-minded trader knows that when a market rallies on bad news, there is a lot of strength in the market.
Bottom. It’s When You Rally on Bad News
By Jim Cramer
11/28/2007 12:59 PM EST
You get a bottom when you get really horrible news and a stock goes up on that news.
Early Warning Wire
2008 begins weak but should end strong
January 14, 2008
The stock market’s decline is clearly overdone and the financial sector has discounted more than will actually occur in the next few months. Watch for rallies on bad news for a sign that the worst is over for now.
A 400 point run-up on extremely negative financial news is as a poster said earlier - bull trap.
Au contraire. Jesse Livermore always said that a market that rallies on bad news is reacting to smart money or insider buying. It is the best indicator of a looming bull market that there is. Don’t ignore it.
But the news wasn’t really bad. In fact the indicators released today all came in better than expected.
22 posted on Tuesday, April 01, 2008 6:31:43 PM by groanup (After 20 years someone finally made money in gold. Now it’s “I told you so”.)
Stock Market Cook Book
Wednesday, May 21, 2008
Recipe #10.6: Mock Turtle Soup--Recap & Tactics
6. If a stock rallies on bad news, enter a long position and vice-versa.
10-28-08 09:17 PM
Ok, so this afternoon we finally resolved the test of the bottom of October 10th. And we all know how it was resolved. It HELD FIRMLY after a wild ride today. The shorts started covering and the longs began to feel more comfortable and began entering.
Volume on today’s rally was impressive. Markets up almost 9%. Two of my 3 bottoming conditions have been met - when the market rallies on bad news this is the 1st part of the signal (see below).
Top 10 News Items 10/27-10/31: Following One of the Worst Months in Stock Market History, Equities Posted a Late-Stage Rally; DJIA Finished October Down Only 13%
October 31, 2008 4:09 PM EDT
Consumer confidence fell to its lowest level ever—38—well below the Street’s estimate of 52. Despite the extremely concerning number, stocks rallied nearly 900 points, marking the second largest point increase on record. Such a phenomenon brings to mind the Wall Street saying, “a market that rallies on bad news could signal a bottom”.
Markets of Oz
Monday, November 3, 2008
Back from my soujourn.
Experts have always said, when the markets rally on bad news, that’s the bottom.
Early Warning Wire
A Repeat of the 1930’s?
November 7, 2008
The Dow, S&P and NASDAQ rose 3%+ today in the face of awful economic news from the job market. A market that rallies on bad news is sure to rally even more on good news as investor expectations are reaching levels of extreme pessimism.
New York City • Banking/Finance/Insurance • (0) Comments • Monday, November 10, 2008 • Permalink