At Ed Seykota’s FAQ he was recently asked:
“I notice the stock currently trading around 360, down from about 435 overnight, down from about about 475 earlier this month. How can an earnings report cause such a big sell-off?”
“In the Causal Model, disappointing earnings “cause” a 20% sell-off in the stock price. In the System Model, you look for evidence of a shift in the intention of the culture, such as buying toys, turning the job of keeping the corporate ethics over to management and compromising the company motto. In the Trend Following Model, you simply notice the long-term trend is still up and the short-term trend is sideways to down and you follow your system.”
I like the way Ed Seykota thinks.