Every day, without fail, stocks rise and fall. While these movements may seem mysterious, they often spring from concrete causes. Investors savvy enough to spot these driving forces may also suss out excellent opportunities to profit.
Basically, every stock trades at the latest price at which someone was willing to sell it, and at which someone else was willing to buy it. That willingness fluctuates depending on the people involved, the circumstances around the company, and even basic human psychology.
Why stocks do what they do
Here's a chart of some of the reasons why stocks move they way they do:
|
Reason for Stock to Go Up |
Reason for Stock to Go Down |
|---|---|
|
Increasing sales and profits |
Falling sales and profits |
|
Great new executive joins the company |
Managers leave the company |
|
Famous investors buy into the stock |
Famous investors sell the stock |
|
Analyst upgrade |
Analyst downgrade |
|
Company lands a big new contract |
Company loses major customers |
|
Other industry stocks or the broad stock market rises |
Other industry stocks or the broad stock market falls |
|
Company offers new product |
Competitors offer new product |
|
Company's industry is hot |
Another industry becomes more popular |
|
A competitor is struggling |
A competitor is thriving |
|
Test results show a product is useful |
Test results show a product is harmful |
|
Company targeted for a merger |
Merger talks fail |
|
Rumors |
Rumors |
|
No reason at all |
Ditto |
Whichever way a stock moves, there's always a possible reason to explain it. (Except, uh, when there isn't. We never said the stock market was always rational.)
For example...
These companies saw significant moves recently, and I've compiled possible explanations for their changing prices:
- On Aug. 17, Charles Schwab (NASDAQ:SCHW) shares dropped 5% on news that New York Attorney General Andrew Cuomo filed a lawsuit alleging that the brokerage had engaged in fraudulent sales and marketing of auction-rate securities.
- On Aug. 20, Sears Holdings (NASDAQ:SHLD) shares fell 12% after the retailer reported lower-than-expected earnings results.
- On Aug. 21, salesforce.com (NYSE:CRM) shares surged 16% after the company posted strong quarterly results. Also, shares of Nabors Industries (NYSE:NBR), a drilling contractor, gained 7% on news that the price of crude oil was rising.
- On Aug. 24, Advanced Micro Devices (NYSE:AMD) shares rose 8% on a Wall Street analyst's upgrade. Goodyear Tire shares, on the other hand, fell almost 5% on news that the government's "Cash for Clunkers" program was ending. On another day, news that Goodyear would close its rubber museum may have prompted a similar 5% drop in shares.
- On Aug. 27, Precision Castparts (NYSE:PCP) shares rose almost 10% on news that the company will acquire Carlton Forge Works. But Massey Energy (NYSE:MEE) shares fell about 3% on pessimistic findings from the government on natural gas supplies.
The market's ups and downs aren't always fun to endure, but we can often turn them to our advantage. If you see a stock falling for no good reason, or a seemingly temporary reason, you might be looking at a buying opportunity.
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