It’s one of the most frequent questions we see in The War Room…

“Why do some stocks move up even after reporting bad earnings?”

Stock prices usually go down after a bad report… unless there’s commentary during the earnings call that changes the sentiment.

For example, we have a trade in Diebold Nixdorf (DBD) going on right now.

The company reported poorer-than-expected earnings in its release. The shares moved lower.

But as investors listened to the call and dug through the release and the company’s comments, they realized the future was bright. As a result, shares have now moved higher.

There are four main reasons a stock can go up even on bad earnings.

Reason #1: Lowballing

After enduring a poor quarter and seeing their stocks get plastered, companies will often use a different tactic for the following quarter.

They will change their commentary throughout the quarter to lower expectations. Then, when the report numbers are released, even if they are bad, they will be less bad – and the shares will rise.

Reason #2: Share Buybacks

Sometimes a company reports poor numbers, but the shares get a boost when the company announces a significant buyback.

Thing is, the buyback doesn’t even have to happen. Just the idea of it gives shareholders and new investors a reason to buy or hang on.

Reason #3: The “Strategic Options” Comment

This is where the company announces it is looking to sell itself or merge with another company.

Like a buyback announcement, this is also open-ended, but it still takes the sting out of a bad earnings report.

Reason #4: “Kitchen Sinking”

The company announces poor numbers and a huge restructuring. It’s called “kitchen sinking” the quarter. This causes investors to believe the worst has passed, and that gives optimism.

You will often see CEOs on CNBC or Bloomberg get asked about their reaction to the share price going lower. They always give the same answer: “We don’t pay attention to the day-to-day moves in the share price – we focus on creating long-term shareholder value.”

That’s pure BS.

They DO care about the share price. It is a real-time scorecard of their performance, and you can bet their fellow CEOs are snickering behind their backs on the back nine.

YOUR ACTION PLAN

Since following all of these factors can be time-consuming, it’s important to consider the most effective methods to predict the direction of a stock. One of the best indicators to look at is one that I use exclusively in my Insider Matrix service.

I bet you guessed it already – it’s insider buying (the legal kind). When I see a CEO putting their money where their mouth is, I will pay attention every time!

Click here to start knowing exactly when a CEO is putting their money on the line today.