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Buying the rumor and selling the fact at your own risk

By Maxine Shapiro, KERA 90.1 commentator

Dallas, TX – Well, you know we really can't complain. We asked for the truth and we're getting it. But what does surprise me a little is how the market is reacting. I'm Maxine Shapiro with KERA Marketplace Middays.

There's an old adage I learned from my days on The Chicago Board of Trade floor: "buy the rumor, sell the fact." And frequently that's how it is played out. A company is rumored or expected to have higher than expected earnings. The company's stock rallies on that expectation. Earnings come out, good as expected, and the company's stock falls. That's "buy the rumor, sell the fact." It usually works in reverse. Companies have been warning that earnings will be down. Their stock breaks on the announcement. Earnings come out as warned and hopefully not worse, and the stock SHOULD rally. But this just isn't happening right now. We break at the rumor and we break at the fact. We've been warned this whole second quarter that the recovery is not moving as quickly as some were hoping or even anticipating.

And we should be very grateful that analysts and their predictions have had to raise the bar. Downgradings are actually occurring in a timelier manner. No more waiting until the stock's worth fifty percent less than what it was month ago. And this is what's really baffling me, the market typically likes the truth. Of course, we've been bombarded with a lot of truths lately.

It's like the old joke. A doctor tells a woman that s she's going to die - she asks for a second opinion and the doctor says, "You're ugly, too!" How much can we take? Yesterday it was pointed out on CNBC that last week, almost $14 billion worth of stock was dumped, taken out of the market. When things look their absolute worse and everyone throws in the towel, is generally when we see the rally. Instead, the Dow broke. The last time we saw that much spill out of the market was last September, the week after the market reopened. Then it was 19 billion. And the market rallied.

New times, new conditions, new everything. I think I'm gonna put in a call to the astrologer. For KERA Marketplace Middays, I'm Maxine Shapiro.

Marketplace Midday Reports air on KERA 90.1 Monday - Friday at 1:04 P.M.