The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

02 January 2011

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

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