For example, in the economic and earnings calendar, you will often see sell-side work in the estimates section. We’ll be in your inbox every morning Monday-Saturday with all the day’s top business news, inspiring stories, best advice and exclusive reporting from Entrepreneur. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.
Yes, it is the inverse of the standard investor wisdom to buy the rumor, and sell the news. But in this case, with the growing concern of Russia invading the Ukraine investors are pressing the sell button once again. However, as I will share in detail below, that is a poor idea because war is not actually a negative for the economy and the S&P 500 (SPY). More on that and other timely investment matters will be discussed in this week’s POWR Value commentary. A trader may also use one company’s earnings to help predict what may happen with the earnings reports of other companies in the same industry.
Buy the rumour, sell the news strategy explained
Investors will buy that asset up to the point where it is no longer undervalued. Year-to-date, SPY has declined -7.26%, versus a % rise in the benchmark S&P 500 index during the same period. We offer a dedicated news and analysis section that is updated daily with information about a wide range of topics, including economic indicators and earnings releases. You could also look to reputable financial sources online, such as Financial Times and Bloomberg. Stay on top of upcoming market-moving events with our customisable economic calendar.
Click below now to see these 7 stellar value stocks with the right stuff to outperform in the coming months. But even more important, is that they are all A rated Strong Buys according to our coveted POWR Ratings system. Yes, that same system where top-rated stocks have averaged a +31.10% annual return. Those FACTS (as you will see in this article) point to not selling at this time and expecting a bounce soon even if a conflict erupts between Russia and Ukraine. After initial pullbacks from the shock of the event, stocks come roaring back to life.
As a result, the news could be good for a trader, but it could equally be bad. Investors who use this strategy tend to seek out undervalued markets. When potential news or info suggests that an asset may produce more future cash flows, this is the “rumor.” The asset is rumored to be worth more in the next few weeks or months.
- When good earnings came out, traders sold the stock and collected their profits.
- Since Apple is such a highly followed company and tends to perform well, its earnings announcements can be traded.
- Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination.
- If a surprise news event is positive enough, it could potentially push the value even higher.
- Yes, it is the inverse of the standard investor wisdom to buy the rumor, and sell the news.
Suppose a forex trader catches wind of a plan for a central bank to raise interest rates. Based on that rumor, the trader may buy up the corresponding currency. When the central bank actually moves the interest rate, the forex trader will watch as the news pushes the currency’s value higher. Once the currency hits a high enough value to earn the trader a nice profit, that trader will “sell the news” and trade the currency at a higher price. If a company is expected to have a very positive earnings report, some traders will buy prior to the announcement because they know others will also be buying into the hype.
What events can I use this strategy with?
Now, if you have invested in some of these companies, you can decide to exit before the news comes out. Alternatively, you can place a sell-stop ahead of the news or calendar event. For example, ahead of earnings, these people will use their experience to predict whether companies will publish strong results. If there was strong merger and acquisition during the quarter, they will believe that companies like Goldman Sachs and Morgan Stanley will do well. They are important because market participants are always attempting to forecast the future.
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Example of Buy the Rumor, Sell the News
Traders who follow the maxim ‘buy the rumour, sell the news’ will open a position on speculation ahead of a news announcement that could affect an asset’s price. News traders can also set up queries and alerts to gather breaking news and correlate it with changes in the price action on a chart. If certain criteria are met, the news trader will then enter a bullish or bearish position depending on the trading strategy.
Alexander Elder – 7 Steps to Trade the Market for Beginners
This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it. Let’s say that a forex trader heard a rumour that the Bank of England (BoE) was going to increase interest rates – which would likely increase the value of GBP. In anticipation of the announcement, traders might open positions on popular GBP currency pairs like GBP/USD or GBP/EUR. Rumours can also impact other markets, such as currencies and commodities. For companies, the most anticipated events will be company earnings, management changes, political decisions and macroeconomic data.
What does buy the rumour, sell the news mean?
For example, a company’s shares can rise sharply as investors wait for it to publish strong results. The company’s shares will then decline when it releases these strong results. You can practise reacting to rumours and news in a risk-free demo account or start trading live markets by opening a City Index account. The Bank of England is due to meet in a week, and rumours are building that suggests it is going to increase interest rates. When central banks raise rates, it points to a stronger economy which means the domestic currency is likely to increase in value.