There are many traders & investors in the market investing based on good news & earnings. However, the returns can be not satisfying because the entry on good news is often at the high side. Investors will need to go through the price fall moment, questioning & finding why the stock price will fall even though the earning is positive. 

Most investors would choose to hold the stocks giving the reason that the earnings are good, the price should go up higher later. When the price falls lower, we will convince ourselves again that the price will rebound later because the financial health is good. Repeating the self-convincing process until you are tired of it & decide to hold for the long term. Despite the initial intention to make short term capital gains based on news. 

We have to understand a very important fact about the financial market pricing mechanism. Good fundamentals never equals stock prices up, but rather good fundamentals MAY affect the stock price to go up in another way. 

The real force to move the price is the demand & supply. Good fundamentals do not always attract huge demand into the stocks. However, expectations always attract demand/supply into the stocks. 

Expectations such as : Key person’s intention to increase valuation, open up shareholding to the public, intention to mark up price for distribution, & any intention for demand & supply to come in.

If the company wishes to increase their valuation for more corporate action on acquisition or expansion, they will need to maintain a good fundamental to attract institutional funds to invest in, while maintaining enough floating shares & funds in the open market for these funds to buy and sell. These are usually good long term investment criteria. 

But not all stocks in the market have this intention. Most of them are expecting a short term benefit from the market. Earning season is the best time to see these short term prices up expectations of the big boys. 

If you are the big boys, will you take the advantage on the price up when you know the last quarter or annual earnings are good? Let’s not talk about why they want to markup the stock price first, you know it is going to attract many investors to buy your shares when good news is going to be announced. Will you want to push up the price a little higher for the investors to buy?

By right, it is unfair for them to markup the price. But we have to accept the fact, this is stock market. We can't apply utopianism in the real world. Because we can’t measure the effect of human emotions, such as greed & fear. Especially in the stock market that operates with the “fuel” of GREED. As long as humans are behind the financial market, everything can be possible.

Our Operator Analysis is developed based on the above principle, we can’t deny there are big boys in KLSE. That’s why technical analysis can’t help us much to achieve consistent returns in the KLSE, but rather just an analysis to tell us what is happening right now, not an analysis to tell us what is going to happen. Ironically, 90% of the investors in the stock market that lose money used traditional technical analysis. Ever wonder what analysis that 10% of the profit investors in the market use? Technical analysis also, but they use it to attract investors to buy their shares. 

How to take advantage of the earnings released? 

Now we know the big boys will take advantage of the earnings to markup the price, we can still make profit out of it by selecting the right stocks. Look into the past few weeks of quarterly earnings, some stocks move higher after the earnings, but some don’t. 

Those stocks that don’t move higher after the earnings often have the pricing characteristic before the announcement.

• Price markup before the announcement 

To avoid getting trapped in buy on news, always check the stock prices that have marked up before the announcement. We all know the big boys will take advantage of the positive earnings to get some bucks from the retail investors. In order for them to make profit out of it, they will need to markup the price above their cost & sell it at the high price on announcement day where the retail investors will move in based on the positive earnings. 

Website: www.roundnsurge.com

Disclaimer :

This blog is for sharing our point of view about the market movement and stocks only. The opinions and information herein are based on available data believed to be reliable and shall not be construed as an offer, invitation or solicitation to buy or sell any securities. Round & Surge and/or its associated persons do not warrant, represent, and/or guarantee the accuracy of any opinions and information herein in any manner whatsoever. No reliance upon any parts thereof by anyone shall give rise to any claim whatsoever against Round & Surge. It is not advice or recommendation to buy or sell any financial instrument. Viewers and readers are responsible for your own trading decision. The author of this blog is not liable for any losses incurred from any investment or trading.