Discounted, Discounting, ... News Flow

Buy on rumour, sell on news ... old adage but probably true in 99 out of 100 cases. Why ... yes, its call discounted by the market. How do we know how much has been discounted (now that is a very stupid thing to ask as I will explain later)? Then we have to look at quality of news flow.



Today's weak markets notwithstanding, lets look at the main news flow in the media today:


1) Loss-making ACE Market-listed Envair Holdings in the news for its surprising announcements of ambitious plans, said it plans to sell two million barrels of light crude oil per month to a Chinese company, a deal which works out to a whopping US$184mil (RM576mil).

Comment: Stock dropped a whopping 13% or 5 sen to 35 sen. How do we know if the news had been discounted already? Look at the volume trend, the last figure of each line was the volume traded. Easy to surmise that there had been a lot of accumulation for the past 3 weeks already. The sell down may have been exaggerated by the weak markets today, but we must also be able to differentiate between "solid news" and "wishy washy ones". The news needed a lot of clarity and details as it seems "unlikely a company the size of Envair eould be able to secure such deals. If I was running Envair, I would make sure we get to a secure deal signing ceremony stage before announcing, never at MOU level.

13/10/20110.140.14 - 0.160.15+0.01 (6.67%)1,133,000
14/10/20110.150.16 - 0.2450.245+0.095 (38.78%)4,224,800
17/10/20110.2450.25 - 0.300.285+0.04 (14.04%)9,126,200
18/10/20110.2850.26 - 0.2950.27-0.015 (5.56%)2,905,700
19/10/20110.270.27 - 0.400.395+0.125 (31.65%)5,019,400
20/10/20110.3950.395 - 0.4350.40+0.005 (1.25%)11,954,800
21/10/20110.400.325 - 0.3950.365-0.035 (9.59%)1,939,600
24/10/20110.3650.35 - 0.3950.36-0.005 (1.39%)1,364,000
25/10/20110.360.315 - 0.360.325-0.035 (10.77%)1,105,400
27/10/20110.3250.33 - 0.3750.375+0.05 (13.33%)5,879,000
28/10/20110.3750.36 - 0.3950.385+0.01 (2.60%)5,427,900
31/10/20110.3850.41 - 0.440.41+0.025 (6.10%)12,369,000
1/11/20110.410.40 - 0.4150.415+0.005 (1.20%)3,161,100
02/11/20110.4150.395 - 0.410.405-0.01 (2.47%)1,283,400


Both Air Asia and MAS are not expected to report significant improvements to their financial performance in the third quarter, owing to the high cost of jet fuel, according to research analysts. “It should be another bad quarter for MAS. AirAsia is also not likely to see stellar results,” said a bank-backed analyst.

Comment: As Air Asia is a very well covered stock with a sufficiently large institutional following. You can put your money down that the views communicated by analysts HAVE ALREADY been made known to their biggest clients. By the time they hit the news, most would have finished selling. Which would have explained why the stock was down only 7 sen or 1.3%, roughly in line with the day's weakness.

I guess the key is that once most news hit the media, you will probably be safe to think it is likely to be have been discounted. Gone are the days where we have "absolute secrecy" to all corporate developments. The whispers are too strong. They could be started by so many parties ... somebody's mistress, some board member, some board member's relatives, the owners themselves, the company lawyers, the investment bankers, the analysts, etc... 


Mind you, even without all the rumours, you can get a pretty good grasp of potential positive developments by keeping a keen eye on volume trends and price movements. Everybody will lie to you, tips are a dime a dozen ... but actual transacted prices don't lie (wait, yes they can be concocted as well ... how else do you explain this wonderful being called Harvest).

Posted in: Carmen Soo Wai Mun