As investors, you may have noticed instances when stocks rise on bad news. Such a situation is not abnormal if you consider the time lapse between old and new news.
It doesn’t matter whether the news is good or bad, the decisive factor is timeliness. In the stock market, rumors fly around daily and the nature of propaganda is such that the more a distortion is repeated, it is being taken as the truth.
When the general market believes in a rumor and starts to act on it, the news has actually been regurgitated many times over. Veteran investors will analyze if the news is old and discount the effect of adverse news accordingly.
A company which releases bad quarterly earnings report can experience an increasing stock price if poor performance is widely expected. A few traders may decide to buy or cover short sales once all the bad news is out.
“Buy on bad news” is one investment method large institutions favor and they often step in to support their large positions at difficult times. As retail investors, we can take advantage of such uptrends and take our profits.