When Good News Isn’t Good Enough

Hey friend,

Orders for durable goods – products built to last, like cars and machinery – rose 1.8% in September, just above the 1.7% forecast.

Consumer confidence jumped to 91.7 in October, well above the 81 forecast and September’s revised 84.2 reading.

New-home sales also beat expectations, reaching an annual pace of 676,000 versus the 653,000 forecast, though that was down from 684,000 in August.

Meanwhile, the Fed begins its two-day meeting today, with its rate decision coming tomorrow.

Let’s see how the markets have been moving.

The Daily Direction

Note: Indexes closed higher yesterday and have been moving higher today as well – sending the short-term direction for the S&P 500 back upward.

The Daily Nugget

A great company can still be a bad trade.

Most traders assume that a great company is a great stock to buy.

It has strong sales. People love its products. Profits keep growing.

But buyers may have already pushed the price up because they expect all of that to continue.

Those buyers aren’t paying for last year’s profits alone. They’re paying for the growth they think comes next.

The higher they push the price, the more the company has to deliver to keep them happy.

Then earnings arrive.

Profits grow 20%. A strong result – unless buyers were counting on 30%.

Some sell, and the stock falls despite the good news.

The business didn’t have to fail. It just had to fall short of the hopes built into its price.

And a drop doesn’t always make the stock cheap. If buyers now expect less growth, they may no longer be willing to pay the old price.

That’s the trap this earnings season. You can be right about how good a company is and still lose money on its stock.

Liking the business is a start. It isn’t a reason to pay any price for it.

The Traders Agency Team

P.S. This cheap cybersecurity stock is an example of a so-called “bad” company – but a great trade.