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Trying to understand market logic - why would this stock fall (GRY)?

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Steve C

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12 April 2012
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Hi everyone,

I am trying to learn more about market psychology and get my head around how market logic works.
I read the below in this mornings news:

"GRYPHON Minerals’ Banfora project in Burkina Faso has confirmed its place among West Africa’s largest undeveloped gold deposits after its gold inventory grew to 4.5 million ounces – more than double the previous figure. The measured, indicated and inferred resource for the Nogbele, Fourkoura, Samavogo and Stinger gold deposits is 56.4 million tonnes at two grams per tonne gold for 3.6 million ounces of gold, using a 0.9gpt cut-off."
(miningnews.net)

Despite this news, the SP has actually fallen 2% today, why would people be selling on announcement such as the above? If i had read the above as soon as it was announcement I would be inclined to buy some stock (I however am a complete newbie to the game)

Steve
 
Hi Steve,

The market is always factoring in upcoming news and trying to predict what will happen. This is a classic case of what is known as 'buy the rumour, sell the fact'.

So in this case the rumour may have been that they would have more gold, and when the announcement came out they didnt have as much as wht the market was expecting, hence the sell off.
 

Thanks prawn_86 - that does make sense, so on the above point buying stocks from breaking news/announcements etc is not a good technique at all. How do people get rumour information before hand to predict a production figure or reserves figure? I have a lot to learn...

Cheers
 
Steve C said:
Hi everyone,

I am trying to learn more about market psychology and get my head around how market logic works.
...

Steve
Click to expand...
Hi Steve C,

Not to Dis anyone, but the history of GRY shows them to be perennial hole drillers.

In this instance, the share price reflects shareholders' sentiment/attitude rather than real value.
 
Steve C said:
... not a good technique ...
Click to expand...

When the share price falls between announcements you try to guess the bottom.
This way you will be holding in time for the next announcement!
 
Buying on news can be ok if:
1. the news is far above expectations
2. the news is totally unexpected and positive
3. the market is very bullish on that particular commodity
4. the market is generally bouyant

Anything that has a high expectation built in will tend to drop off after the ann. The SP will be punished if the market has had to wait well beyond the expected date, or the news is below market expectations.
 
Steve C said:
Thanks -great advice
Click to expand...

I should temper that advice a little!

I had BLR on my watchlist for 5 years
(many announcements) before I finally bought some.
Rene Rivkin said if a share doesn't do what you want in six weeks, sell it.
Within six weeks, it did exactly what I wanted, so I still sold it.
 

Buying on news may or may not be a good techniquie. It all depends on the behaviour of the stock prior to the announcement, and what the market expectation is. The market expectation is not necessarily from "rumour" per se... it is simply reflected in the price.

Here's one example.

MXI announced a profit upgrade at the AGM on 21 Oct. The share price jumped 20% that day. Are investors too late to join the party after the news?

Over the next month you could have bought between 30-36c. The last price is 62c.

Why did it go up so much? Because the market didn't expect such a high profit. Companies similar to MXI trade at a certain PE multiple, and MXI was priced by the market at that PE multiple based on last year's lower profit number. When the profit upgrade was announced, it took a little while for the market to catch up to the fact and re-rate the company. In this case, buy the news was exactly the right thing to do.



The moral of the story? Assess each event on its own merit.
 

Most likely, there were sellers that had more to sell than buyers wanted to buy. For the price to stop falling buyers must find some kind of value at a lower price and the sellers must unload all they needed to at those higher prices... The market is after all, an AUCTION.

CanOz
 
Many gold related shares are looking like this one (deep decline).
You need to ask yourself "Where is gold price headed?"
 

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Exactly Burgler, so these sellers may be thinking in a different time frame, i.e. short to medium term.

CanOz
 
Thank you to everyone for the replies - very insightful.

I really need to start learning more about understanding balance sheets and ratios (the fundementals) and then start looking at charting analysis etc - so much to learn, but very exciting at the same time!

Steve
 

Yes

burglar said:
Many gold related shares are looking like this one (deep decline).
You need to ask yourself "Where is gold price headed?"
Click to expand...

and Yes.

No more complicated than that.
 
burglar said:
When the share price falls between announcements you try to guess the bottom.
This way you will be holding in time for the next announcement!
Click to expand...



sounds like something out of a movie......and when the next annoc comes and it's bad......can we qualify these ideas with some data or other supporting criteria?
 
Joules MM1 said:


sounds like something out of a movie......and when the next annoc comes and it's bad......can we qualify these ideas with some data or other supporting criteria?
Click to expand...

So you would knock over the half full glass to end his misery?
 

this needs more criteria too.....these ideas suite well in a bull phase, we're not in a bull phase.....and depending on where you are in the phase, you may find news, no matter how good, can be leaned on with existing supply by large holders who want to get cheaper and larger supply and as "a" decline steepens and momentum builds into the buying low, that's the point most retailers quit their holdings......what is clear is that bull market thinking/logic is also what makes retail traders buy winter lows......again, qualifying these ideas is important and while there are no guarantees of getting an entrance correct, i think it's too easy to broad-brush trading ideas ......

recently, there have been gold plays that have come very close to fair value with stella finds with no concept of future value and the market has treated them with more selling.......all this needs context.....each case on its own.......
 
burglar said:
So you would knock over the half full glass to end his misery?
Click to expand...

logic and psychology are two diff things adn one is often the excuse to input the other.......trend is going down = cheaper stock, better entrance, versus, stock going down= ticks all the bear phase boxes......
 
Joules MM1 said:
.....each case on its own.......
Click to expand...

Agree with you on that!!


The OP's example is gold related.
But his question is about price action on the release of an announcement.

He will continue being surprised for many years to come.
 
burglar said:
Agree with you on that!!


The OP's example is gold related.
But his question is about price action on the release of an announcement.

He will continue being surprised for many years to come.
Click to expand...

No different.
If gold was powering then so would the stock after the announcement.
All related.
As is buy the rumour
 
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