Rule #1 Finance Blog

With Investor Phil Town

CTSH: GOOD NEWS, OR BEAR TRAP?

Here's an interesting question:

Phil:

Most days I am so thankful that I went to that "Get Motivated" Seminar in Cleveland and heard you speak on investing because I did not understand it at all and you gave me a direction to go.  After that I got your book when it came out, read it at least six times (I'm a slow learner), convinced my brothers to join me in getting an Investools account, and I have been paper trading since May.

However, there are days I think, "What did I get myself into?"  I'm not embarrassed to admit (yes I am) that I'm feeling a bit overwhelmed because there is so much information out there about investing and trading when you start looking for it.  Investor's Business Daily, Wallstreet Journal, CNBC, Motley Fool, PBS Nightly Business Report, theStreet.com, Jim Cramer's radio and TV show, etc.  I get a headache trying to make sense of all the things I hear and read.  To that one might say, "Just focus on following the Rule Number One way of investing." I'd like to, but being so new at this I'm afraid I'm going to miss something!  I can't believe I'm the only one who feels this way.

That said, it is pretty cool following the arrows and knowing that you got out of Panera well before it tanked!  I do think this is an excellent time to be learning to invest.

So here is my question:

I got my last green arrow for Cognizant Technology Solutions Corp. (CTSH) last Friday and I bought a position on Monday.  They are releasing earnings this Wednesday.  Is it more likely that:

a) The stock price has moved up over it's 30 day moving avg because of good news coming out when earnings are released.

b) Crafty institutional investors are ready to spring a bear trap by "pushing" the price over the 30 day moving avg, getting more investors to buy, and then selling short when bad earnings news is released.

or

c) Dude, you are thinking way too much about this. Get in when the arrows are green and get out when they turn red.

Thanks for the insight!

Dean
RIT – Rule #1 Investor in Training

My response:

I think you are learning, grasshopper!

They might be springing a bear trap.  Could be.  Maybe they know
something bad in advance of the earnings announcement.  A lot of good
investors refuse to put money in right before an earnings announcement
just for that reason.  Still it had three greens and that is tempting
isn't it?  So what to do?

First, remember what you think the value of CTSH is relative to its
price.  This thing is on sale if it can continue to perform as it has
for many years.  Therefore, a bear trap is less likely simply because
CTSH is on sale.  That gives us confidence that a number of Big Guys
are smelling a good number for the quarterly earnings report that they
think will drive the stock up, and they are hoping to get in some bucks
before the actual news.  Since you already love the biz, know it has
a great moat, love the manager and love the price, you're going to jump
right in there with them.

Now go play.

Phil