The stock market...

Might as well keep my trend of Apple posts going tonight...

So what is it with the stock market and their reaction to financial news? Apple comes out and announces their best quarter in the entire history of the company, and it's not even a christmas holiday quarter. How does the market respond? By dinging the stock price 6% of it's value in after hours trading. Why? Apparently because "the street" expected Apple to announce 5 million iPads sold in the quarter, but only 4.19 million were sold due to supply constraints.

I just don't understand this phenomenon. A company does well, but not to the exact level that some analyst says, and the stock price falls. But in other cases a company can do badly, but not as bad as someone predicts, and a stock price will go up.

I'm just glad I never got heavy into stock trading. I'd be basing most of my buys off what companies I think will do well, not which ones meet peoples predictions. Though, I suppose most of this would only be important in day trading. Longer term investments seem to do okay following the companies that perform well.

The stock price falls after a good announcement because it has rallied prior to the announcement. More precisely because people are selling off shares to take some profit. If you have money to throw around, you buy Apple stock a little while before a quarterly result and you sell where you think the peak is - usually the day of the announcement. I can't recall the last time it didn't play out like this.

Many are not interested in how well a company is doing in general terms, but how well it will do in the (near) future compared to how it is doing now. So, they spot a trend (or, hope to do so), and use it to make a profit.
They sell shares now at a higher price that that you'll be able to buy them tomorrow it the tred is negative, or buy shares now at a lower price than tomorrow's price of those same shares if the trend is positive.

Which is what you should be doing.

Wall Street types have a saying for this: "Buy the rumor, sell the news."