Why is it that when a company announces that it is doing well, sometimes the stock goes down?

Question

Are there large investors selling massive qauntities of the stock when it is first announced to suck in the money from small investors that might want to profit from that investment on expectations? And so what should I look for besides good product and strong buy recommendations? Just seems so unfair and so convoluted that someone with lots of wealth would be allowed to do such a thing. Shouldn't there be a law against bidding extremely low on a stock price to bid it down when it really has more potential than that, especially for those who have large sums of money to adjust the market price like that?

Answer 1

The stockmarket company stock prices are based on supply(fear) and demand(greed). These are the main reasons that drive prices of the stocks. High demand=high prices etc.

When a company announces it's profits in a financial report, the profits have already happened and the huge institutional stock traders and astute private stock traders have also made their profits.

When the less seasoned trader/investor reads the news/reports, they are buying these stocks at overinflated prices, when all the institutional and astute traders are selling the stocks and thus the prices of the stocks go down drastically. Those institutional traders offload and sell away millions of stocks, which is why the stock prices suddenly drop drastically.

There is no law against traders buying and selling huge volumes of stokc, except it can't be insider trading, whereby they tell their friends or family members that they are about to make some company's stockprice go up or down by buying or selling millions of the company's stock; it would be illegal. SEC closely monitors the market to make sure there is no insider trading.

However, buying and selling millions of stock at a time is not illegal; some people do it all the time, everyday.

Answer 2

Although the answers already given are very interesting, I do not believe that for a large stock that trades in volume, any investor is really able to manipulate the market, without exposing himself to great risk. The markets collective wisdom has to be accepted when prices are set. Keep in mind that in every trade there is (usually) an informed buyer and a seller.

Stock prices are based on expectations for the future, and in cases where the price drops after an earnings announcement, it is usually because the earnings did not meet the expectations that were included in the price in the period leading up to the earnings announcement, even though the announced numbers can be very well. But in these cases they may not have been good enough to justify the price, which was based on higher expectations.

Keep in mind that good companies may not always be good investments. When expectations are high it is easier to disappoint, which is bad for the stock price, although the company may be great. A mediocre company that always exceeds expectations may well be a better investment.

Answer 3

Dear Skahhh nice to meet you again. In fact what you asked was not a problem with the American stokc market when I was there. This was a problem I saw happening here in India. I asked a professional trader here why this happens on announcement of important news why the price go down. He said it is because of insider trading. Some insiders or their relatives know early what is going on and the price might go up then. When the announcement is made all these entities will sell to book profits to the gullibles. Now knowing that this is creeping into American stock market which was unpolluted is disheartening. It is dangerous if they copy tactics employed in other countries. Recently I found in this forum that some brokers won't allow to book large profits. This was also a problem here. Hopefully someone will set things right before things go out of hand. Now to avoid some of these problems Indians stock market has stopped short sales. Now after so many years may seven or eight they are trying to bring it back. Good day.

Answer 4

Do your own research on financials and prospects for the stock. It not unusual for stock to go down on earnings news. Often it has run up before the announcement on anticipation of good news (buy on the rumor, sell on the news is an old adage) or sometimes good earnings still fall short of expectations. The overall market and industry also affect stock price. There are laws against price manipulation. Don't put too much faith in analyst buy recommendations, they are notoriously undependable and often inaccurate

Answer 5

1) Some investors buy Castles, Eclipses 500, Yatchs or Enzos when they hear good news and they sell a few shares to buy those things.
2) No.
3) Profits.

You don't need a lot of wealth to sell your stocks when you hear good news.

You can do exactly the same.

You cannot regulate the price of a stock.

If everybody is selling then the price goes down.
If everybody is buying then the price goes up.

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