Sell the Rumor and Buy the News

You have probably heard the expression ‘Buy the rumor and sell the news’  ?  Well that strategy works very well when you are looking to go long a particular stock on some forward looking news.

The opposite of buy the rumor sell is the news, is ‘Sell the rumor and buy the news’.  This is exactly what I think is going on right now.  Traders have already begun selling the upcoming news next week (shorting it) and when the news arrives (whether it is debt news, or Fed QE3 news, or maybe something else) they will very likely buy to cover and close shorts right on neckline support.

Meanwhile major news networks are providing us with great informative updates about how the market will crash and it will be Armageddon next week.  I think even MSNBC showed a price chart of the DJIA a day ago showing how it declined.  All of them are talking about the stock market and how it will fall apart.  To give them some credit, they have been right about the decline leading up to the news.

So I currently recommend closing all shorts near the 1265 to 1270 sp500 range or the DJIA 12000 range.  I believe this support will hold and the market will bounce from there.  Of course that is not guaranteed.  Will have to see how the market reactions on neckline support and then take cues from there.  But I suspect we will see a mini capitulation near these levels.  We may dip under these levels briefly but I suspect it would only be for a very short time frame.

Assuming the sp500 and DJIA gets to that range within the next couple of trading days I would then expect a multi day or possibly 2 to 3 week extended upside bounce that would create an ideal NEW shorting opportunity that positions the market to move down again for a break of the yellow dotted neckline.

That break of the neckline should be accompanied by a wide price spread and a relatively big move.

August would be the perfect month for the upside bounce in that it would be typically a low volume upside bounce when everyone is on vacation.

The new shorting opportunities could arrive either at the 1295 range or the 1315 to 1320 range.

sp50020110728

The only scenario where I can see us slicing through the neckline like a hot knife through butter is if we do a repeat of the May 2010 scenario.  I just do not see how something like that can be predicted.  I suppose the first sign that will occur again will be the speed with which we do or do not take out the yellow dotted neckline support.

So for now I am sticking to the theoretical yellow drawn in line for the upcoming price action.  The BOT short signal of a few days ago is still intact and is likely to remain so for quite some time.

Posted in SP500, Technical Analysis
Tags:
5 comments on “Sell the Rumor and Buy the News
  1. Tom says:

    As a follow up I made a calculation there is an outside chance we decline and break under the neckline on an INTRADAY basis which could make this look like the May 2010 flash crash. In that case 1225 should mark the intra day low approximately.

    I view this flash crash possibility as a low probability event. The conservative forecast is for neckline support to hold and bounce off of neckline.

  2. Geoff says:

    you seem to be getting more mature / real. it looks like you are suggesting your readers take short profits if the market dips enough. however, it sounds like you will still be holding short even though you think there will be a bounce at lower levels. in any event, it seems to be a “sea” change where you are anticipating taking profits if conditions warrant. it will be nice to have you book a profit at last, after such an incredible and long string of horrendously bad calls. BUT do not want to congratulate you until the deed is done and profits, if any, booked.

  3. JR says:

    The Black Swan was just an ugly duckling. Watch the White Swan fly Monday!!
    Why anyone would believe the Nut Quackers that the U.S. would default on its debt really shows that people will believe anything!
    Good night Rush. By the way does everyone know he flunked out of college (a community college in Mississippi) in his first year.
    This is one dumb guy, but still he has millions who follow him blindly.
    Never mind what the Nobel Laureates are saying Rush knows best, the Liberals will destroy the country with their constantly raising the debt ceiling.

  4. ed says:

    Stocks are down tonight.

    Of course the Senate vote will be the clincher but I have several indicators that are telling me that we will be starting a new uptrend tomorrow.

  5. Geoff says:

    well the SP closed today (Tues, Aug 2) at 1254. the “pug” blogsite, i think, absolutely did not anticipate this action – – after 9 months or so of spot on calls, i think he is off the rails here.

    i must admit i am confused here. dare i say it, this reminds me the week leading up to the 1987 crash. for about a week or more, the market went relentlessly down and you just did not think it could go lower, but it did in a fantastical way.

    i am not sure what can save this market. QE2 was artificial. if there is a QE3 than perhaps everyone will jump the gun and there will be an unbelievable explosion upward (investors lkg at what happened from Sept 10 to May 11) that may be the reverse of a crash but than, like in 1987 but in reverse, that would represent the selling short opportunity and over months, the explosion upward would be worn away to nothing and go negative from the blastoff point of months before.

    i think there is a couple of huge fundamental problems: (1) heavy debt loads worldwide restraining consumption and thus restraining the need to create jobs for lack of demand, and (2) the baby boomers of WWII era are retiring and they simply do not shop, they do not need to shop – in fact, quite the opposite, they need to simplify. It is this demographics issue that has buggered Japan for years and i think will bugger the USA and Europe.

    in summary, I think the market could potentially go BIG in either direction, but i would assign a 70% probability that it is down and only 30% that it is up.

    I think that the FED would do well to let the market seek its own level (down 20% from here) and than use some mechanism like QE3 or whatever.

    note: while this blog site suggested closing shorts at 1265 – 1270, i do not see that it actually posted that directive so, so far, so good for this blog. hoping that this blog can rack up a profit at very long last

Leave a Reply

Your email address will not be published. Required fields are marked *

*

s2Member®