News and Stocks
How to Trade Stocks
Whenever I see a feature about a company on the front of a popular magazine, I am confident that the stock of that company is probably at an extreme and a very high risk for either a steep retracement or a reversal of trend even before even checking the stock chart. That is because magazines and general news media only report on companies after the fact, and after the stocks have been moving for a long time.
A few professional traders have even tried to develop a trading sell short strategy based around popular magazines featuring a company on the front page or as a major news story. It is not a sure thing, but some professionals have found that they can sell the downside very well once the stock starts to tumble. The requirement is a confirmed topping candlestick pattern action, using appropriate indicators.
That is not to say that every company that is featured on the front of a popular magazine suddenly heads south. However it is an interesting phenomenon that correlates with the odd lot buyer, who is always the last buyer into a stock prior to a major reversal of trend. The odd lot buyer is also the last one out of a downtrending stock that has lost most of its value.
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So when you see a stock you own on the cover of a magazine or headlining a TV news story, it is time to start ratcheting up the stops and considering if an exit should be planned. Much of what is read and heard is ancient information that has already been factored into the price. If it is in the news as a hot stock, then it is suspect for at least a retracement and more likely the start of topping action.
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Martha Stokes CMT
Chartered Market Technician
Instructor and Developer of TechniTrader® Stock and Option Courses
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