I follow the market, and apparently a huge number of people buy and sell stocks every time a squirrel farts, or Greenspan scratches his ear. These people must spend tens of thousands a year on commissions.

Eeek! Costs me $15 per trade; there are probably cheaper brokers if you shop. I probably make fewer than 50 trades per yer. But then I like value & fundamentals, and I will hang on to some stocks for years, if I like them.

The folks who follow the "day-trader" method of investing can buy and sell the same stock several times per day. If each buy/sell pair of trades earns you $50 or $100 and costs $15 in commission, and if you accomplish this several times per day, then you can make a living at it. Obviously, sometimes they guess wrong and take a loss. If they are good at it, they make more than they lose.

Are they aware that when they buy or sell on the news they must almost certainly be selling on the down curve and buying on the up curve?

How do these people make money?

Generic answer: if they sold for higher than they bought, then they made money. More specific answer: if they sold before the stock dropped further, then they didn't take the loss that they would have, if they rode it all the way down. As you point out: when there is news that affects a company, you can predict an effect on the stock price. If you think the price will go down, it is in your interest to sell before it does. Remember: selling on the down curve is a lot better than selling on the bottom.

In fact there is a specific facility called a "stop loss" trade that makes this easier. With your broker, you arange that if the stock drops to a certain price, the broker will automaticall sell for you at the best price he can get. This protects the stockholder from getting killed by Enron /Tyco plummets.

As far as the mad cow news affecting McDonalds price: there is a genuine reason why it should: McDonalds may sell fewer burgers; therefore McDs profits may be lower than predicted. Failing to meet profitability predictions is a sure-fire recipe for a dropping stock price. Therefore the stock becomes less attractive at current prices (which were based on profitability predictions that did not take the mad cow news into account).