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Why good news can mean a bad day on the market

It is often baffling to watch a company post a stellar result only to see its share price getting smashed into the red by the market.

Was there something you missed in the fine print?

What else could be going on to warrant such a response?

During reporting season, plenty of companies see “relief rallies” take place, with players like Telstra Corporation Ltd (ASX: TLS) recently seeing its beleaguered share price jump up off the back of news of its new organisational structure.

But it can also work in reverse.

For example, Commonwealth Bank of Australia (ASX: CBA) shares rose 1% yesterday despite several broker downgrades while Navitas Limited (ASX: NVT) shares surged on the day of its results release despite posting an after-tax FY18 loss of $55.3 million.

Similarly, investors failed to react to Cadence Capital Limited’s (ASX: CDM) strong results this week, with its share price unmoved despite posting a record FY18 profit after tax of $41.2 million.

Shares in Cadence closed off yesterday in the red, opening today down at $1.32.

Is there any rhyme or reason to share price rises and falls then?

To start with, market sentiment takes some time to register on the charts.

While it may seem as if the market had an unusual response to an announcement, chances are the information just hasn’t filtered down to the masses yet, and when that happens, you’re likely to see the true impact of the change.

For example, shares in packaging company Orora Ltd (ASX: ORA) dived 4% in morning trade yesterday, despite its FY18 results coming in strong, with an uptick in NPAT of 12% and EPS rising 11.5%.

Orora has opened today up 0.4% to $3.47, so it’s likely the true impact of its results is coming into play now, but it can make timing your buying and selling awkward when delays in sentiment occur.

AGL Energy Ltd (ASX: AGL) will be on watch today, down 2.1% at the time of writing to $20.65 following the release of its full-year results yesterday – which showed better-than-expected profit and higher-than-anticipated dividends.

Looking more closely AGL has provided pretty uninspiring guidance for FY19 and with oil prices falling overnight these things combined could knock shareholder sentiment.

One company riding the ups and downs lately has been LiveTiles Ltd (ASX: LVT) as its share price rocketed higher on a new partnership announcement with Microsoft, only to come crashing back down to reality after a trading halt pending the announcement of a $25 million placement and $2 million share purchase plan.

Investors could obsess over the ups and downs of certain companies all day, but the “wait a while” mentality is the best one to take if you’re unsure why a stock is moving in one direction or another.

A couple of days can be a long time in the life of a share price and the wait and see approach is often the only option we have.

Blue chip shares are not immune to these inexplicable highs and lows.

Check out our top 3 ASX Blue Chips To Buy In 2018 here.

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Motley Fool contributor Carin Pickworth owns shares of Commonwealth Bank of Australia and Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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