Market is supreme. No other entity is powerful  than the market itself. It has its own rules, fundas and theories. One of the most crucial aspect of market functioning is "it discount everything well in advance". The stock price moves first and the news always appears later on rather than stock prices chasing the news. (mystock has hundreds of live example which proves this). Market( i.e. price movements) always judge the things which are yet to be unfold. Its a collective outcome of continues battle between bulls and bears, insiders and general public, smart investors and late followers.

Take a example, when Infosys was quoting (Feb/March 2000) around Rs.13500 when the tech stocks, world over, were soaring like anything, NASDAQ was creating new histories how many investors have foreseen impending technology sector crash/slowdown, world over and more particular in Silicon valley?. Hardly few. But look at the share price movements of Infosys or NASDAQ. The price charts were clearly suggested a bearish trend when the tech stocks were started tumbling, but investors were in buying spree. Subsequently when all the tech stock, world over, crashed by 20-30% from their peak levels, the news were started flowing that there is a chances of  slow down in the tech sector and the dot com bubble has been bust. Some investors were never believed on these news and continue their buying spree considering attractive valuation from fundamental perspective. After some time the real story come out and every one on the street was convinced that there is indeed a slowdown in the technology sector but by the time Infosys tumbled from high of 13500 to 2200, Nasdaq witnessed a 70% value erosion in the span of just in 18 months.

The moral of the storey is, "market has already discounted the good news in the stocks and started discounting/visualizing the downside (so far unknown to the world) of the great technology bubble. The most interesting part is that those who have sold Infosys at 10000+ level were also not exactly aware of what is going to happen in future. mystock had also advised sell call, across the software stocks, in March 2000, but never known what will happen after 2 years. But one thing was quite sure the investment trend was completely bearish.

 See Sensex chart for last 25 years. In April 1988 Sensex was quoting around 390 level. In the next 4 years it has scaled to new historic high of 4546. That is a sensational rise of 1068% in just 4 years. No doubt some credit goes to late Mr. Harshad Mehta, but he really dominated the market in the fag end of the bull run (year 91-92 when Sensex was moved from 2400 to 4500). Even though one could have neglected the manipulation by Harshad Mehta, still you have spectacular bull run which had given 1000% returns in just 4 years and in subsequent corrections market never witnessed a fall below 2100. The interesting point is what exactly happened in these 4 years?. Do you remember? This was a pre-reform era, where political/financial situation in the country was very fluid. The most young and dynamic P.M. was assassinated. There was total chaos on social front in the country.

What could have happed in these 4 years, so that Sensex has moved from 400 to 4500?. (Remember, if this could have been just speculative rise, then in subsequent years it should have completely retrace the entire rise, but in fact Sensex has never tumbled below 3000 level for the next 10 years, proving that is was not just speculative rise). Puzzled!.

Reality was that, there was just rumors of economic and financial reforms, entry of foreigners in the Indian equity markets etc.etc. The political and economic think tanks were busy exploring the new economic model for sustainable growth and removal of poverty in the country. The world was changing very rapidly. So as usual market started discounting the future and stock prices skyrocketed in these 4 years despite of all sorts of bad news. When everyone was surprised and shocked with this rise, market was indicating towards a great future for the country.

In subsequent years when the country really opened the floodgates of reforms (visualized by market in 1988-92) in Corporate/Financial sectors, market stopped moving up. Sensex was stuck in range of 3000-4500 level for almost 11 years (from 1992-2003, except one blip upto 6100 in tech rally). These moves in Sensex were  again confusing. When the country was yet to open up, yet to start economic reforms, Sensex catapulted from 400 to 4500, but when the real reform process started, it fumbled and stucked in range bound move nearly for a decade. Why?

Because, when the country started genuine reform process, market went into hibernation mode and started discounting each and every reform process, its impact on the economy and corporate world & bla bla bla. And now when it is convinced the real "India story", it has permanently(?) forgotten the range of 4500-5000 for the Sensex and started climbing up.

Take another example, somewhere in 2003, few smart/intelligent analyst of Goldman Sachs published the now world famous "BRIC" report indicating the financial prowess of Brazil, Russia, India and china cornering 40% of world economic growth. And equally projecting "India " as world's 3rd largest economy by 2040". If we believe in the astonishing capacity  of the equity markets to discount the future more  rapidly and more perfectly rather than any conventional model, where will be the Sensex after 10-15 years?. Do you really think that Sensex will wait till we are at number 3 or  will it start discounting  the things much earlier, say in the next decade or so, by catapulting to more than 20000+ ?

Check out the world news on General motors and Ford motors. There is a speculation in the world about collapse of these two great companies and the bonds are already been downgraded to junk status.  Now see the accompanied stock price chart of General Motors (New York stock exchange, prices in $).

Somewhere in 99, more specifically, on week ended on 07.05.99 stock price of G.M. has scaled to all time high of $94.88. Subsequently after crashing to $59.75 on 13.08.99, it has once again started its upward march and scaled to $94.63 on 28.04.00. This stock price movement of G.M. for almost one year has inadvertently, unknowingly created one of the most powerful bearish pattern called "Double top" at $94, signaling a impending bearish trend for next few months/years. Since then stock price started moving down, slowly & steadily, discounting all quarterly, half yearly and yearly financial data, movements of crude oil prices, consumer preference index etc etc. There were alternate bullish and bearish bounce in stock price of G.M. but the long term trend was perfectly down and most recently stock price has made a 13 year low of $24.67 on 19.04.05 (that is nearly 5 years after the double top bearish pattern on charts).

In short, inadvertently, unknowingly stock prices were indicating to the world that something is wrong in G.M., its financial outlook  is not so good. But real bad news started flowing in just few months back, in short price moves has outperformed the news flow by wide margins.

So when the common investor is busy in analyzing the recent quarterly results of Infosys or Ranbaxy, stock price is in the process of discounting the next 4 quarters results. That's why we witnessed erratic moves after declaration of results or any fundamental announcement by management of the company. And usually bad financial results/news leads to upward price movement in stock and good financial outcome/news  leads to crash in stock prices on the day of the announcement or subsequent trading sessions. Because market (stock price) has already discounted the future well ahead of you and me.

"Stock market is the leading indicator of the economy rather than lagging indicator"  & Technical analysis, help us to know the future trend of the market in better ways rather than just fundamental study of the stock/economy. So next time, whenever you read strongly bullish news about any stock in the financial newspapers or on any "commercial T.V. channels", just think that you are the last person to know this information and arguably you are the part of the "group" to whom the "insiders" are likely to distribute the stocks which they have  already purchased.