Rose:
I agree with you completely. Personally, I do not like to buy a stock after news of an analyst upgrade. Typically, it is too late to buy a stock then, the stock has already risen appreciably.
The more I learn about daytrading the more suspect I become of expert opinions.
You are right on the money again. When analysts upgrades are released, I like to imagine the 'information chain'. The analyst themselves are the first to be aware of the impending upgrade. Although they may be forbidden from buying and selling before the release of their research, their families and friends have no such restrictions and may accumulate some stock. Next, the big institutional customers that pay big bucks for research are given the information of the upgrade. They buy whatever stock that they are inclined to buy. Next, news travels to the brokerage firms, and the stockbrokers call their biggest customers (i.e. the ones who generate the big commissions which pays for the stockbrokers new car). These big customers may think they have 'advance' information and might buy a few shares on this 'hot tip'.
Finally, the news is released publically and you hear about the upgrade on the internet and CNBC. At this point, the stock has 'mysteriously' already risen several points in the last several days. Upon public release, the stock may gap an additional couple of points in order to allow the public to buy to stock at the highest possible point <ggg>. Selling the stock to the public may be some of the biggest customers of the stockbroker, institutional owner and (you guessed it) the friends and family of the analyst who all purchased the stock in recent days. Often time, after the stock gap opens on an analyst upgrade, the stock has very little strength left and either holds a steady price, or declines.
Skepticism is a real asset for trading based on upgrades/ downgrades. I usually try to avoid trading these stocks at all.
-Eric |
