Separating rumor from news, opportunity from risk

Market professionals rely on the clues that other investors betray, knowingly or no. Positive and negative divergences -- that is divergent action between a stock and its group, a stock or group and the market, and markets themselves (metals vs currencies) are one clue. Another clue is how a stock trades on rumors.

Consider two stocks (labeled 1 and 2) below (click on each chart to enlarge)...

Company #1

~~~

Company #2

Okay, you will quickly notice that each chart:
1) Includes daily bars since mid-2009
2) Ends on 30 November
3) Mimics the other, eerily so.

It is that last item I call to your attention: Two near-identical trading patterns... that ends, rather abruptly, come 1 December 2010...

Company #1

Company #2

Of course it would help were you to know the two companies; #1 is AT&T/T and #2 is Verizon/VZ. "Ahh," you say, "Now I get it!"

You probably do. Rumors abound that AT&T will lose its contract with Apple/AAPL for exclusive rights to offer the iPhone in the USA. But that rumor has been around for a good long while; what's different now?

One rule investors keep in mind is, "Buy the rumor, sell the news." It will be interesting to learn the news from Apple, AT&T, and Verizon in coming days and weeks. And the effect that news will have on their respective stock prices, now that the rumor of something has been priced in; arguably adequately so.

Full Disclosure: Long Apple/AAPL and Verizon/VZ.
-- David M Gordon / The Deipnosophist