Good afternoon guys,
A different ending to perhaps what some may have thought, including mois. But quite predictable and also understandable.
Earlier today I mentioned that I was collecting data regarding the unexpected change in sentiment to SELL considering there had been such good news in the past 2 days. And there have been some great posts during the day from experienced traders familiar with stock movements trying to calm the masses. I also mentioned that I may come back at the end of the day to share my thoughts on today's activities if the sentiment continued and the close was lower than yesterday.
Ok...so I am presently following 2 trails of breadcrumbs and I would like to share one of my researched theories about why the stock tanked today.
Newtons Third Law of Motion states that: " for every action there is an equal and opposite reaction". I found that this law of physics also plays out in share trading and trending movements when you factor in sentiment.
Have a look at the following chart to see the 2 days trading.
View attachment 192420
In Mathematics when you multiply a positive and a negative you get a
negative.
Keep following me here. But first let's look at the 5 common reasons why stock prices fall on good news.
Some of these have already been discussed today.
Source:
http://shabbir.in/stock-prices-down-good-results/
1. Market Sentiments
If market sentiments are not bullish, it can overlook stock-specific factors like good earnings or good fundamentals. Apart from the market direction sector specific sentiments can also impact the stock prices.
2. Profit Booking
Large investors target good results outcome to unwind their large position. Large investor holds substantial number of shares and if they plan to sell them on any given day the stock price can come down sharply and so on good news or good result outcome, large investors can unwind their long position easily without much of a price damage.
3. Interest Rates
A rise in interest rate can potentially lower stock prices – even if fundamentals of a particular stock are excellent. As an investor you may not be ready to take the risk of investing in stock when you can get good appreciation of your money elsewhere without any risk. The only reason I can think for Indian market under-performance. We see lot of money being gushed out of Indian equity market but the Re-USD price is not impacted to the extent it should. The only reason I can sense for it is – large investors and foreign investors think putting the money in risk free debt market is much more beneficial than remain invested in equity market because of less upside potential from the current levels.
4. Mode of Earnings
Producing winning numbers may not be enough. Occasionally company can report a one-time gain because of unexpected factors like – a lower than average tax rate or income from forex changes… Investors not only value number but mode of earnings as well.
5. Future Prospects
Even if results being reported may be very strong, outlook regarding future earnings may not be as strong and this can dampen the stock prices heavily.
I have a 6th possible reason. I call it
Reverse Anger Sentiment and it lines up perfectly with Newtons Third Law.
I will come to LWP now but first lets look at the maths again.
For every action there is an equal and opposite reaction
A positive '(+)' X by a negative '(-)' = NEGATIVE '(-)'
In the real world if you try and come at something too fast it will often shove back harder with painful results. This is what I believe we saw today.
Let's look at why I feel
Reverse Anger Sentiment is in play here. To me everything is mathematical. It can be explained if you have all the FACTS.
In a normal trading scenario when the fortune of a company takes a tumble the share price usually follows. They work in parallel. When fear cuts in with share traders the price will continue to fall. So a negative plus a negative = a NEGATIVE. (-6 + -3 = -9) Share Price drops more until there is good news.
The fortunes of LWP have gone from a high of 2.5c to touching .0025 with the neighbour incident a few months ago. The mood in HC was toxic. LWP were not talking to shareholders and any announcements which came seemed to be reactive in nature. In otherwords they came after pressure from Hot Copper shareholders.
But the companies fundamentals were good. People just weren't happy with the management.
Now towards the end of March we saw a turn around in Market releases and management were becoming more pro-active releasing positive updates about every 5 to 7 days.
What did it do to the share price?
People started to feel a little more upbeat with the company and the buy lines started to build in depth and we started seeing more positive trading days, then trading weeks. There has been great expectation and buoyancy amongst shareholders.; with plenty of " what could this be?" posts.
Why the change in sentiment?
I believe management heard the concerns of the shareholders plus they had some great news coming with their product range coupled with the slow return in the POO. A positive '+' PLUS another '+' = a POSITIVE '+'. Share price slowly rising.
With this single announcements people have had time to digest and research each one which gave them confidence in stepping up and buying shares again. We also saw Institutionals like Ord Minett buying large volumes. LWP was on the move.
But as I have mentioned in both forums, IMO we still have been skirting on the borders of toxicity as seen by the perceived negative posts. Also, the sell volumes haven't decreased as you would expect with pending good news and, in fact, they began to cluster and fill in the depths up the ladder through May and then into the opening days of June.
So to my
Reverse Anger sentiment theory. Angry stock holders normally drive share prices down and then position themselves on the nearest train platform to leave on the first available train.
Reverse anger sentiment applies when an
unexpected mass of good news announcements hits the market at the
one time.
Reverse referring to the opposite reaction expected for good news.
I cant speak for anyone who owns shares in LWP and is selling but from my research I can say that there can often be a feeling of " why should others profit when I have lost so much". So when the price rises and go beyond expectations those sellers will push back and they will push back hard as we have seen today and the price will move down.
Newton's Third Law of Motion in play!
So what are the downsides?
1) As can be seen by the days volumes there was certainly more trades in SELL than the day before which was strongly BUY in sentiment. We could???see more sell into buy lines and the share price hovering a little lower (purely speculative)
2) It could initially slow the recovery depending on how Institutionals view the activity today. You will notice there were no apparent large volume rescues.
3) The sell line depths could continue to build creating difficult caps to unplug which affects future good news announcements.
Are there any upsides?
Yes there are!
1) Management may see todays results and consider releasing single announcements to rebuild confidence again.
2) Those shares will be gone once they are in new sets of hands to allow for a steady climb again.
3) This can be a one day wonder and everything corrects itself overnight.
4) People will have time to digest the potential of the good news and decide to remove their sell positions uncapping the resistance and allowing the price to naturally rise again.
Like many I was shocked to see what happened today on the market even with reading some of the explanations but I also was not expecting a large volume of good announcements to try and digest all at the one time.
Bottom line though...the announcements are quality announcements and I think that they are great news for the company and I know that LWP management and staff must be absolutely chuffed with what lies before them.
So we cant change with what has happened today but I think there are good lessons to be learnt.
From my research this company has a very bright future and for those who hold I believe we will see fruit returned for holding the line and weathering the storm and for those who sell, as I have said before, I hope that they can make good profits or get returns that will help them invest in other companies returning them big dollars.
So guys, I submit this for you to consider, discuss, agree or disagree with but as one main line of thought I am pursuing it seems very feasible to me.
Cheers.......59
