Good morning, traders…
A crazy move happened yesterday.
Multiple stocks dropped 20-30% in ten minutes…
…right after the “bullish” news everyone had been waiting for was announced.
Yes. You heard that right…
Bullish news caused a 30% drop.
By the time the official announcement hit, the buying pressure had evaporated.
The rumor phase was over. The news became the exit signal.
This is a textbook example of a well-documented effect in the stock market known as “buy the rumor, sell the news…”
It happens when a stock rises into a widely anticipated catalyst, then dumps precisely as the catalyst arrives.
The traders who position during the rumor phase make a killing, while those who buy right before the news get destroyed.
Timing the trend beats “being right” … every time.
This Is How You Buy The Rumor (And Sell The News)…
What “Buy The Rumor, Sell The News” Means
You’ve seen it before…
Prices rise leading into a bullish news event, then tank once the event actually occurs.
But “buy the rumor, sell the news” doesn’t mean the news is bad.
It means prices move on expectations, not outcomes.
Smart Money front-runs the announcement. Dumb Money chases those moves near the top.
The 3 Phases
Phase 1: Rumor
Information leaks, speculation builds, analysts revise forecasts, and institutions accumulate.
The result: price trends up with expanding volume.
This is where the real money gets made.
Phase 2: Confirmation
The information becomes fully priced in. Early buyers take profits, late buyers (often retail traders and momentum chasers) provide exit liquidity.
Phase 3: Post-Event Repricing
The market reassesses what comes next.
The stock sells off hard.
If growth slows or uncertainty increases, even “great news” can trigger sell-offs when it doesn’t exceed expectations.
A company can beat earnings, raise guidance, deliver the most bullish news imaginable…
…and still drop double digits intraday.
Case in point, that’s exactly what happened yesterday with cannabis stocks…
Why Weed Stocks Went Up In Smoke
The Rumor Phase
Over the past week, multiple media outlets reported that Trump was very likely to sign an executive order to reschedule cannabis from Schedule I to Schedule III.
This change would ease federal tax treatment for cannabis businesses, allowing them to deduct business expenses.
This would put many “unprofitable” cannabis companies in the green (pun very much intended).
It would also improve access to banking and institutional capital while providing federal regulatory relief.
In response, cannabis stocks ripped higher on massive volume over the past seven sessions as traders positioned ahead of the expected announcement.
But there was no official signed order, no formal text, no legal implementation … just reports and political talk signaling an imminent policy shift.
The News Drops
Yesterday, around 1:30 PM ET, we got confirmation that Trump was set to sign an executive order on cannabis rescheduling at an afternoon White House event.
Weed traders got excited.
This is what they’d been waiting for…
But they were in for a rude awakening…
The “Sell The News” Reaction
As soon as the news dropped, cannabis stocks went up in smoke.
In ten minutes:
- MSOS dropped 21%
- TLRY dropped 16%
- CGC dropped 32%
This is textbook “buy the rumor, sell the news” behavior.
Cannabis stocks rose on the rumor and absolutely dumped on the news (even though the news was bullish).
How To Avoid “Buying The News”
Buy the expectation, not the announcement.
Identify where the rumor phase peaks.
Once a catalyst is widely reported and positioning looks crowded, scale out, hedge, or exit completely.
Watch volume expansion.
Volume spikes before an event mean the news is already priced in. That’s your warning sign you’re late.
Manage risk around political catalysts.
Even “good” news disappoints relative to expectations. Define your risk against consensus, not headlines.
The cannabis trade was obvious. Everyone knew rescheduling would be massively bullish.
And that’s the problem.
When everyone knows something, it’s already priced in.
The traders who made money bought cannabis stocks 2 weeks ago when the rumors first started circulating.
They scaled out as the news got closer. They were almost completely out by the time Trump signed the order.
You might be thinking, “Ben, didn’t you mention a Tilray contract this week?”
Yes. On Wednesday, I mentioned the TLRY Feb 20 $15 calls.
But look at them…
Those calls skyrocketed 65% at the open yesterday.
After those first few green candles, I would’ve scaled out of my initial capital invested (or exited entirely).
Why?
Because we want to buy the rumor, sell the news.
Not the other way around.
Happy trading,
Ben Sturgill
*Past performance does not indicate future results