“Hey, John, ABC Company is in chapter 11, are you holding any long position-sell quick.”
That is one of a typical scenario in trading or business scene in which operational grieving is diffusing and penetrating company staff whiles another group of professional is waiting silently for its prey’s final and last move before tearing it apart. The dialogue belongs to part of the trail which may lead to the prey’s final locality.
Despite the fact that the recovery may be on the way to tow truck load of financial tumour so that company’s health is promising in near future, no doubt, the indicator still present a symptom to short or sell the stock prior to possible price erosion in near future. Besides this one, can we find more opportunity to short the market?
To add on to the list, other crumbs which are discovered along the trail includes this one like, promotion of fund raising in one of the commercial financing vehicle without any clear movement in business expansion plan or major project on hand. It is always not a good sign for feeling when someone asks for money without explaining the purpose. Since the financial matter is on the air, let’s follow up with some tell tale sign from financial report. Watch out for this, if the financial report does not contain an enthusiastic business plan for consecutive years, as a matter of fact the company may not close down but definitely hard to grow. Financial report also triggers the event of consecutive descending EBIT in quarterly report. This is obviously indicative for instant reaction before last quarter’s arrival. Last but not least, the company has not declared any dime of dividend since IPO, although the reaction is not as spontaneous as your wishful thought but is sufficient to be an indicator for down trend.
Other than financial, staff movement is critical in term of running the business. Haw about the resignation of chief finance controller or CEO, without further prominent portfolio from head hunter? The impact is operationally jeopardy. Other sign includes major sizing down exercises like, less working day, layoff, close regional office and partial pay cut.
Segmentation influences, can anyone recall how SARS creates an impact to food and beverages sector and overall market sentiment? I will definitely keep my eyes on similar event to short the market in future.
Yes, indeed, I agree that some of those tell tale signs are actually healthy approach to sustain the company’s future, but the fact is that, the trading field may perceive as different sentiment and thus affecting the price movement. Therefore, the suggestion is to interpret those signs with other trading mechanism to finalise your investment strategy.
One final suggestion is, whenever you are selling or encouraging your buddy to sell quick out of your good will, take a close look at those reasons, then justify yourself for a reversal. Don’t forget, you can actually invert any charting device just by a click, after that it looks exactly like the previous one, reversely.