I’ve watched for several months as President Trump has flirted a trade deal with China to Wall Street. And finally, last Friday, the deal was announced.
If this deal was everything Wall Street hoped for, surely the market would have held all its gains and rocketed to new highs.
This was a classic “buy the rumor, sell the news” situation.
Table of Contents
- 1 What Is Buying the Rumor?
- 2 Take the Predictable Move
- 3 Selling the News
- 4 Think Ahead of the Newbies
- 5 Penny Stock Example
- 6 Think Differently
- 7 History Doesn’t Repeat Itself, But It Often Rhymes
China Deal Reaction
On Friday, October 11, the S&P 500 (NYSE: SPY) had a big morning spike as Trump and his government spread rumors about a completed deal with China. The deal announcement didn’t occur until the afternoon session, where the market sharply sold off, closing at the day’s lows.
Here’s the SPY chart:
I don’t care so much about intraday double tops on the big averages like the SPY, Nasdaq (NYSE: QQQ), and Dow Jones Industrial Average (NYSE: DIA) … BUT you can clearly see when the news broke at the end of the day.
The market tanked.
All three indices tanked.
If you didn’t see the news, you’d probably think, “Oh, there’s no deal…”
NO! There actually was a deal … and frankly, it’s a little better than most people thought would happen, but everyone was selling the news. The big players already had positions because they anticipated the news and sold to the newbies who bought the press release.
What Is Buying the Rumor?
The China trade deal reaction was just the latest example of this pattern I teach my students early in the Trading Challenge. Without history and knowledge, newbies will buy the news…
And over again. Just to see the market crash every time.
Then you’re like…
“The stock market makes no sense!”
But it makes perfect sense! You just need to learn the rules. Most people make idiotic newbie assumptions about the rules.
Take the Predictable Move
I do like buying the rumors of a deal … not necessarily a China deal, because I’d be buying the whole market … but I’ll buy a penny stock on rumors that they’re working with Google. I may not hold it overnight or even hold it very long because rumors can get busted easily.
But you can buy in anticipation of a deal. This pattern is easily predictable. You just don’t want to be involved when the news actually comes out. So be careful when in a trade and the company says something like:
“We’re reporting earnings in three days at 4 p.m. Eastern time.”
You do NOT want to be in that stock when their announcement comes.
Selling the News
A lot of traders — not even just newbies — only look at like one or two indicators, like good earnings or record growth.
For example, a company could have good earnings right now, but warn on their conference call:
“We had a record quarter this quarter, but a competitor just came out with a product, so next quarter is looking a little soft.”
Then the stock tanks 30%. Yet the headline reads “Record Numbers!” so why does the stock tank?
Think Ahead of the Newbies
You really have to think about little comments, forward-looking statements, and expectations because they can change the earnings reaction. It’s not just about record profits or the headlines right now.
Once you start thinking like that, you start not wanting to be there during announcements. This is why I say when a company is reporting earnings, I don’t want to be in the stock for the announcement! The stock could go up 30%, it could go down 30%, or it could be a non-event. I don’t like playing guessing games.
Instead, I might buy the stock before earnings because rumors are spreading about record earnings. However, I’ll ALWAYS sell my position before the announcement. Once the reaction has set in, I may play a different earnings winner pattern I discuss in this video lesson.
Penny Stock Example
The stock market isn’t as simple as you want. Especially when it comes to a China-U.S. trade deal. When we’re dealing with the two most powerful countries in the world, it’s not just going to be like…
“Oh, everything’s fine!”
And many newbies don’t account for that. However, penny stocks are much simpler than the overall stock market, which is why I focus on them.
Here’s a prime example of a penny stock “buy the rumor, sell the news” situation…
I was able to anticipate the news on Workhouse Group Inc. (Nasdaq: WKHS). I’ve seen this pattern countless times over the past 20 years. The key is to develop intelligence and think ahead of time. You don’t want to think like the 90% of traders who lose money.
News isn’t always guaranteed to be good. Why gamble with your money?
Ride the Wave of Anticipation
Many people only see the press release or glance at the news headline. They don’t understand the game. I teach the members of my Trading Challenge to anticipate news on penny stocks and potentially make trades as I did on WKHS.
WHKS Trade: https://profit.ly/1Mtthx
History Doesn’t Repeat Itself, But It Often Rhymes
The next “buy the rumor, sell the news” play won’t look EXACTLY like the SPY did when the US-China trade deal was announced. Nor will it look exactly like WKHS, but the pattern will repeat itself.
I hate seeing newbies blindly buy the “positive” news, only to get dumped on. Stop making the same newbie mistakes: Don’t hold through the news … ride the rumor and take your single.
If you’re ready to learn and catch the next rumor, apply for the Trading Challenge.
Recent Tweets, Comments, and Trades from Students
Here’s a look at some of my students’ recent comments in the chat rooms and on Twitter…
The market really started to heat up this week…
From the Trading Challenge Chat Room
Many of my students understand the pattern and are more than willing to help others.
Profit.ly user Alayonj asked a question about a stock with news: Anyone know why $GNUS never broke through yesterday’s high? I guess good news is not always good news?
But before I could help out, another student Profit.ly user answered the question: MoonShot → alayonj: “buy the rumor, sell the news”.
Another student, Profit.ly user olli400: Bought 200 $NBEV $3.26 my goal is to sell into late day spike as people seeing the rumor buy in en masse.
Awesome job olli400 riding the rumor hype.
Long time student — and now millionaire mentor — Profit.ly user markcroock: Long 7k $NBEV on nestea rumor.
The pattern is for all skill levels. Great trading everyone!
More Comments from the TimAlerts Chat Room
It seems like Profit.ly user hardmove has been studying all my video lessons: All I can hear in my head right now is “buy the rumor sell the news” #timsykes.
Last but not least, props to Profit.ly user nrddct for thinking outside the box: Rumor is opiod companies are trying to settle before trial starts on Monday. If so maybe huge run up.
[Please note these results are not typical. These traders have exceptional knowledge and skills that they’ve developed with time and dedication. Most traders lose money. Trading is risky. Do your due diligence and never risk more than you can afford.]
What do you think about penny stock hold and hopers? Comment below, I love to hear from all my readers!