I have often advanced investment ideas where there was a clear catalyst all the market was aware of. The basic reasoning is that you ought to buy into the approaching catalyst, and sell right when it materializes. This is not very different from the classic "buy the rumor, sell the news". But more importantly, does it work?
In this article I will show how the latest 2 instances of this type of speculation went, and remind people that there's still an ongoing third chance to take advantage of this mechanism.
Back in June 11, 2013 I explained that GSVC was going to benefit from the Twitter IPO. And in September 24, 2013 I explained that this benefit was going to last exactly into the Twitter IPO, and then would turn into a negative effect right afterwards.
This is how GSVC went. In green you have the first article; in red is the precise date of the Twitter IPO.
As we can see the anticipation effect was incredibly clear. And the selling as soon as the expected news hit was equally predictable and intense.
Apple saw a similar event with the China Mobile news. The entire market knew the China Mobile deal was coming and was significant for Apple. So the entire market bought Apple shares into that deal.
I wrote an article explaining that from the day the deal was announced and for a few days or weeks the share price would do badly. This is how it went.
So indeed, Apple stock gapped up on the news, but the stock has been sliding ever since as expected. It's likely that this slide won't be as aggressive as with GSVC, but still it's amazing just how predictable the behavior turned out to be.
How can you still take advantage of this phenomenon?
The opportunities in GSVC and Apple are already gone at this point. Is there another stock where an investor can reliably time the next similar move?
As a matter of fact, there is. The stock is Yahoo (NASDAQ:YHOO). Yahoo is being bid up because of the Alibaba IPO. This has been going on for months now. When I wrote about it in November 22, 2013, Yahoo was 10% lower.
It might already be too late to trade Yahoo from the long side. But on the other hand, we do know when we should sell or short Yahoo. We should sell it or short it on the day Alibaba actually IPOs. It doesn't much matter if Alibaba goes up 10% or 50% on that day. Yahoo will be weak for days and weeks to come after that event, much like it happened with GSVC or Apple.
And in the end, we'll be able to produce a chart exactly like the GSVC and Apple charts in this article, with a thin red line on the day Alibaba IPOs and YHOO doing badly from there onwards.
So be alert for the Alibaba IPO, as that's your high probability setup right there.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. I might short YHOO on the Alibaba IPO day.