Why didn’t Bank of America’s stock go to the moon after reporting fourth quarter beat the earnings expectations? Not only it beat the earnings expectations, BAC also provided very rosy outlook for the first quarter of 2017. The market didn’t care. It was promptly sold off against a prior cycle high.
How many times have we studied the fundamentals of a company to the best of our abilities based on earnings, sales, book values, enterprise values, etc., we still found ourselves holding a loser? The company could have a great earnings report, the market could still reject it. The Street analysts will always come up with reasons as to why the good earnings are not good enough.
We at PricenTime.com have been there. We understand the valuation and market price are two totally different beasts. The market is highly emotional and not efficient, it always overshoots or undershoots. We use our cyclical approach to filter out the noises. Nothing is as good as it looks, nothing is as bad as it looks either.
In the case of BAC, the weekly cycle started on the week of 9/30/2016, way before the election event. The external events such as the election and interest rate change occurred in the cycle up phase to propel the cycle to achieve the weekly cycle high. Remember it is the fundamentals moving the cycles. The reactions to external events always move in the direction of cycle.
We are aware that cycles could invert sometimes and the best technical analysis could at times not work at all because short time cycle distortions could happen to affect the technical analysis. That’s why we always issue a stop loss order for all of our trades.
We are cognizant of BAC’s healthy long term fundamentals by looking at the healthy long term charts. We shorted BAC based on a very tight stop loss and clear downside time and price target.
“Buy the rumor, sell the news” should be translated as buy the expectations/speculations, sell the reality.