Adage in the Financial Markets: Buy the Rumor, Sell the News

Tom Gentile

Posted in
Big Picture

By: Tom Gentile
June 28th, 2024

4 mins read

Buy the rumor, selling the news is a concept used more often by traders of both stock and options than investors.

This strategy is where a trader buys a security based on speculation that it may trade higher due to an upcoming news announcement or data, and then sells the security once the news is made public.

The same can be done if one thinks the news announcement or data will cause the security to drop. In that case the strategy would be to sell the rumor buy the news, (sell the security short and buy it back to cover). This is a bit riskier due to it involving selling a security short going into the event.

I’ll focus on anticipating the security moving higher on the news and therefor not sell the security short.

Options Can Also be Considered

Instead of buying the security prior to the news announcement or data being released one can consider a bullish option strategy as simple as a Long Call trade.

The thing to further consider if the Long Call trade is the way one wants to go is making sure the option expiration that is out past the anticipated expected length of time the move should take.

The time decay of a call option accelerates faster in the last week before its expiration so if the news announcement or data doesn’t pop the security higher an option whose expiration is at the end of the week of that news or data could suffer bigger losses than anticipated or wanted.

Security Trade or Options Trade?

In either case , whether I go long the security or long a call option, the process I favor in either scenario is to sell the security or sell to close the option after the news or data is released.

Win, lose or Draw that is the typical plan for the ‘buy the rumor, sell the news’ concept/strategy.

The belief is once the news or data is released the reason for the trade is over. One typically buys the security or option in anticipation of the news before most everyone else.

Once the news is out and those who haven’t picked up the security or option may try to start jumping in on it now that the news is out. Maybe they see it getting publicity on the financial news networks and feel they want to now pick it up for fear of missing out on the potential price move higher on the news/data. That’s fine by us because while others are jumping in late I am taking whatever profits may have been obtained.

In a sense you can consider my though process as Buying value, selling hysteria.  When it works it is a nice short-term profit and when it doesn’t I am not sitting around holding this while it drops even further.

That being said it seems the financial markets did buy the rumor sell the news on both the first Presidential debate last night and the PCE this morning.

Nothing earth shattering happen with either, but the fact both happened and is over people sold securities after the pop higher this morning.  They sold the fact the news event and economic data came out and they can now focus on new reasons to trade, (at lower prices than those from this morning).



The annotation in the image above sums things up simply.

550 is the double top resistance area that SPY needs to clear, preferably on a closing basis, for me to feel more confidence in the markets trading higher from a technical point of view.

The fact the markets sold off after both the Presidential debate last night and the PCE number this morning doesn’t surprise me as I wrote about on the front page.

The key thing now is to monitor a potential support area for SPY.

Different securities tend to react to different period Moving Averages as a support or a resistance.

Securities typically don’t trade too far away from their 10-Day Simple Moving Average (SMA). Case in point SPY is trading on its’ 10-Day SMA at the close of market today.

Tom Gentile
C1P: Chief 1-Percenter

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