$SCTY was up 20% 3/3/16 after rumors of Elon Musk’s interest to take SolarCity private. Musk, CEO of $TSLA, hasn’t made any mention of the possibility in social mediums, as he often does. Nonetheless, rumors alone sparked emotional trading despite a growing loss position. Musk has a 22% stake in $SCTY with his nephew at the helm.
The 5-year $SCTY chart paints a picture perfect scenario of a stock’s lifecycle. At IPO most traders are bullish about the company’s possibilities. As time matches on and more news accumulates the bullish trade match on. After a couple of years the facts start to set in. Market analysts who once gave high price targets start to change their tune. The company’s performance struggles to meet expectations- it’s the company’s early years still! The Bears step in and a large percentage of shares are shorted.
Market psychology is likened to the herding mentality. Rumors of $SCTY being molded by Musk provides a catalyst for traders to experience hope. If the rumors fuel continues then optimism may be next. If news appears of rumor validity then belief will set in. More traders join and thrill is experienced. New pps highs can be reached and euphoria sets in just before the pps top for the event sets in. The market psychology explains what happens next as profit taking sets in.
It is shown in research that wise investors trade opposite of the herd mentality. Wisdom points to fundamental research that substantiates a long-term hold through momentum trader emotions, or to abandon the investment altogether.
Follow Up
I’ll follow up once this $SCTY rumor event cooks longer.
(Photo courtesy of steadfastfinances.com; stock chart analysis courtesy of me)
