As we approach the earnings season, if you’ve watched the market (even for just a few months), and you’ve seen previous stock report earnings, you’ll start noticing that they start behaving erratically and in ways that don’t make sense.
You may think a stock will do phenomenal on earnings (and it may!) but what happens to the stock is that it actually starts to sell off. Alternatively, what you may see happen is a stock that has horrible earnings but actually goes to the upside!
So why does this happen?
A stock’s price movement after earnings is based on expectations and not on directly on the earnings that were reported. It’s based on the big money managers/institutions project earning in the future as well.
If certain money managers expected the stock to rocket and it didn’t reach that expectations – it may start selling off, when in reality – it actually did pretty well overall. Tailor your expectations to what you’re looking for in stock rather than relying 100% on a money manager or institution’s take on the stock.