Why stocks fall even when results are good

I read that reliance and hdfc bank result was good , but price was falling in both of them , also same happened for TCS ,

Whats happening behind ? What should i look before trading results ?

The above are the daily charts of Reliance and HDFC Bank. Look at the chart from one month & one week before the results. Both the stocks rallied 10-15% in the one month before results and 5-6% in one week before results.
When the stock rallies before the results the stock is sitting on the peak of the mountain already and needs strong results for any further up move as price already rallied in anticipation of good results.

In this case, both the results were not very strong and just met expectations of analyst in some parameters only which is not enough for the price to increase any further.

Hoe this helps your query.

Thanks in advance.

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Thank you , how do we decide if result met expectation , any website that mentions this in table [ expected result , outcome result] , instead of article format ?

Vishnu

  1. Market is a place of discounting meaning available and known information are discounted in advance by those who are aware of (either by insider information, by analysis, conviction of whatever we term).
  2. Institutional buying follows a forecasting process, this means between 4 to 6 quarters of earnings is estimated in advance (process starts with guidance is given by company management and vetted by institutions after due diligence). Hence buying or selling takes place well before results published. Now there is a surprise element here, if actual results beats the forecast, the additional surprise element is rewarded. On downside it’s punished.
    Consensus forecasting by institution is available in Thomson Reuters application but its paid one.
    So retailers have two choices: a. build a conviction irrespective of what institutional forecasting says ( a value investing style of approach). This means do your own analysis for 3 to 5 year forecasting-either a DCF, franchise valuation etc). b. OR follow the institutions foot print through price volume relationship.

I like to follow both crowd foot print (charts) with a franchise valuation (fundamentals).

Look for normal behaviour or constructive price behaviour. Ideally a heavy volume buying above a price will be supported by large buyers if price falls back subsequently. Volume will reduce as retailers take profits away. Once again heavy volume buying starts price breaks out.

Reliance - watch the January 2nd week, Price broken out with big volume and continued for 2 months or so. So it was already discounted before result.

A very good book to understand price behaviour is VCP (volatility contraction pattern) is ’ Trade Like a stock market wizard’ by Mark Minervini.

Thank you , what about behaviour of maruti , it got worst result and price went so much down , but now price is more that result date.

These days no large cap institutions make a quick gain on result… For them, gaining is a gradual process. What short-term investors do, i think, is they choose better performing companies and invest in them from last few weeks/months before the results and gradually - buy on every dips - and then at last on the day of result, stock will open gap up and they’ll sell their portfolio for a good profit; also because of the good results there would be buyers for that stocks, so transaction becomes easy. And once the stock consolidates its downfall at some point, they will start reinvesting for the next results, if the numbers seems right… ~ my thoughts.

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Ok, fair thought. Institutions rarely buy or sell result, not saying it’s ruled out. What I mentioned is the process how initiative buyers react, forecasting is a standard process buying from blue list. Their buying is based on 4/6 quarters of forecasting (to start with and then extended) not get in and get out unless its institutional derivative firm.
Good results wouldn’t gap up or bad results wouldn’t gap down, I think gentleman wanted to know the rationale why price behaved.
Regarding retail, many strategies as deem fit to own customization. I can share what I do:

  • for trading positions unless I am sitting on break even positions (no risks) I don’t carry forward positions to result day.
  • for core portfolio, one quarter result is of little help unless sufficient information indicates a looming disaster on operational and financial abilities. Nevertheless money management need to be respected.

This mean’s there is a renewed buying interest in stock.

  1. First I would like to check whether it’s trading activity or investing activity.
  2. Whether it’s a meaningful buying (volume support and price support)

First one:

Traders have joined the party, look at the expansion of short term moving averages. Investor though stopped selling further, there is no confirmatory evidence as to they have started buying. Once investor starts buying, long term moving averages will expand and widen.

Second: meaningful buying
Buyer demand is back (high volume breakouts with low volume pullback). But volume are not so attractive. Stock is still below 200DMA.

Unless I am going for swing trade, I would avoid this stock. I will wait till 200DMA at least before taking a positional trade. Further I don’t see any constructive base forming.

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Have you ever dealed with stocks before ? It’s all very volatile, it’s stock market nature, what did you expected ? I assume not that it will constantly grows over time and more and more of that, correct ? It’s just a common sense I would say and nothing more.