Financial markets tend to move because of demand and supply forces however these will also change for different reasons. The reasons can vary from economic data announcements, political stands and social factors. An important factor which gives rise to irrational behaviour by investors is when we use emotions to decided our next move.
A case in point is what is happening with the Juventus FC shares. Back in June, the share price was hovering around the area of 0.65 but when rumours started to spread that the club will sign Cristiano Ronaldo, the price started to increase exponentially reaching a high of 1.75 by mid-September (i.e. an increase of a whopping 170% in over two months).
Ronaldo, apart from being one of the greatest of all time on the pitch, is also a marketing machine and thus many investors were jumping the boat on the fact that he will bring millions of euros from sponsorship deals and advertisement.
During the past couple of days however, the star is being accused of rape with various media sources providing new revelations. The club issued a serious of tweets in defence of the football star however these were not really appreciated as they were seen as insensitive and the stock is now trading at 1.133. (i.e. a decrease of 35% in two weeks!).
This situation is also somewhat affecting other companies which use Ronaldo as one of their brand ambassadors.
EA Sports and Nike have issued statements which are more different from Juventus. EA said that “they are monitoring the situation as they expect that athletes and ambassadors conduct themselves in a manner that is consistent with EA values”. The stock price for these companies fell around 5% during this period.
Whether these allegations are true or not no one really knows. The matter of fact is that when an event involves human emotions directly, whether positively or negatively, some investors would instantly react to make sure that they are on the right side of their beliefs.
From a trading perspective, I think that the price has sold off nicely all the hype after the transfer as it was massively overvalued. We should watch out for the first support at area €1 which goes way back to 2009. Fundamentally, the club is very strong with revenues on the rise each year. We can also appreciate that over the last couple of years, the club has changed from loss making to healthy profits.