A friend of mine who makes a living as a day trader watches the changes in trading volume and stock price to see how the stock market reacts to BP news stories. When we chatted a few days ago, he exclaimed to me, "The BP stock market movements make perfect sense!" His excitement was due to most of his friends telling him that the market is short-term irrational and, of course, he's been waiting to prove them wrong.
"Case Exhibit 1: BP first had a jump in trading volume and drop in price on April 26th. The explosion that killed 11 workers occurred on April 20th, the rig sank on April 22nd yet wasn't until the 26th before BP's volume went up and stock price actually went down substantially."
"So what's that prove?"
"That Wall Street didn't have a clue about how much of a mess this was going to be until oil was less than 40 miles from the shore and booms were being set up."
"Most of America already knows that Wall Street is clueless about forecasting. What else did you notice studying the BP stock charts?"
"Case Exhibit 2: Besides April 26th, there have only been three other days since the explosion when BP's trading volume doubled and the stock price dropped by more than 3%. All were very special days in BP's history: April 29th, when Governor Jindal declared a state of emergency, May 3 when BP announced it will pay the clean-up costs and my favorite day, June 1st."
"What was the big news event on June 1st?"
"That's the day that Attorney General Holder announced that his office is looking into criminal prosecutions".
"What's Wall Street prediction about BP prosecutions?"
"Word on the street is it would take even longer than in Bhopal, if ever. Say, are you interested in a hot stock tip? I know a great oil stock that's taken a short term beating but the long term prospects look excellent."