Buy the rumor, sell the news

April 7, 20214 Comments

The old adage on Wall Street is to “Buy the rumor, sell the news”. I have found this adage to be particularly true when it comes to stocks or sectors that are headlining. Today we’ll look at past examples of this “Buy the rumor, sell the news” cycle. Then, we’ll examine the newest candidate for this ever-true investment cycle.

Marijuana is coming to a store near you!

Rumors and stories surrounding  marijuana stock profits and business potential soared during the period leading into its legalization in Canada. The legalization occurred  October of 2018. Take a look at virtually any pot-stock in the leadup period. Notice anything? When the news was official in October 2018 (marijuana went legit in Canada)….. that was the peak. You were basically too late if you were a buyer when the news came out. In fact, as the adage goes, you needed to “sell on the news” to avoid the subsequent crash and burn. Here’s the Horizons ETF for the sector:

Another sector that caught the wave of “Buy the rumor” and is now catching the downside of “sell the news “phase. This is the clean-green sector (Clean energy, EV’s). Perhaps the clean energy movement is best illustrated by the Solar energy (TAN) ETF. The news surrounding a move to clean energy alternatives gained momentum in 2020, including hopes surrounding a Biden win (who supports the movement).  This, effectively after the senate became split in February 2021 and Democrat’s held unencumbered power to enact their green agenda. Once the news was digested that all signals were clear towards the clean-green policy, the benefitting stocks sold off. The chart below illustrates this pattern. Buy the rumor, sell the news.

 

Which brings me to the newest “Sell on news” sector.

Leading up to the creation of the vaccine for COVID, many a drug stock involved in that process caught a bid. That was the “rumor” part of the adage. Now, a year later, we are at the “news” part of the adage. Three of the main vaccine producers are Pfizer, Moderna and Astra Zeneca. Lets look at the charts going back a year to watch the rumor create the rally, then the news cycle create a peak. We are now in the post-party hangover phase, where investors playing these stocks should keep the “sell the news” part of the adage in mind.

Starting with Pfizer. Note the build after the March 2020 crash, then the December peak which coincides with the real thrust in distribution of their vaccine:

Next is Moderna. Similar pattern…weakness of late as the news is, well, old news.

Finally, AstraZeneca. I used the weekly chart to give a bigger impression of its peak–which was much earlier than the other two stocks. But the decline phase has been sharper too. This, based on blood clotting issues found in the drug. That, and the “sell the news” part of the cycle has caused more havoc in this stock than competitors.

 

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4 Comments

    • we recently reduced our exposure – although we still hold about 6% direct oil plus 3% in a pipeline

      Reply
  • Keith curious what technical sign caused you to reduce exposure to oil. Or was it simply reducing beta as you mention above. I don’t see where the up trend has broken down, the news is a wash demand and supply both rising and the commodity price is relatively stable. I believe they are still ripe for a multiple expansion closer to the 5 to 6 times they used to trade at.

    Reply
    • Using XEG as a proxy for the sector: $8 resistance and having trouble breaking that–meanwhile, RIS and stochastics rolling over a bit. Plus, seasonal period weaker for oil may-October. So we reduced not eliminated that exposure. We like it longer term–its not bearish, but it looks like it may struggle a bit here.

      Reply

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