If you are a new or even a pro trader, you probably already understand the value and importance news has on the stock market and individual stocks. Day after day, week after week, traders sit and watch their favorite stocks tick up and tick down. The general rule of thumb is that stocks will generally trade with the broader markets, they’ll drift until they reach a support or resistance level. Or, they will drift until a catalyst comes along. Catalysts come in many sizes and shapes. The biggest catalyst are usually found in news driven events. News can be M&A’s, earnings reports, activist investor stakes, etc. Catalysts are what drive stock volatility and allow us to profit on the moves as traders. Timing when trading a new driven event is critical. The impact of some news can last only minutes, whereas other news events have an impact for days.
A good, recent example of a longer term impact from news can be seen on Voltari Corporation (VLTC). The stock moved up nearly 370% in just a few days. The news came on an activist investor stake from Carl Icahn, a wealthy investor with a history of bringing added value to companies he buys a stake in. More on the Voltari story can be found here.
Genetic Technologies (GENE) is another stock that rose to epic highs after trading in obscurity for quite some time. A 766% move to the upside in just a few short weeks after a myriad of announcements, the first being the implementation of BREVAGenplus, a new, predictive way to test for breast cancer. The impact of this news was felt for weeks, and perpetuated by continued speculation and other news releases as everyone rushed to be the next to cash in.
Small cap and low float stocks aren’t the only ones who benefit from news traders and investors. Big board stocks like Twitter (TWTR) and Facebook (FB), also move with positive and negative news. Filtering the news on high volume stocks can be much more difficult. There are a ton of people writing about the stock and speculating price targets, but generally aren’t very influential in the price action. Earnings, special SEC filings and special company authored announcements are where these stocks get there momentum from. Whether it is a valuation on a Instagram (owned by Facebook) that boosts buying interest or an earnings beat from TWTR with projected advertising growth, these stocks still provide profitable trading opportunities and generally, with less volatility.
Like so many sharp moves in the market, nothing last forever and as can be seen in just about nearly every case, a sell off usually follows a big news driven hype. Once prices are adjusted to factor in the value of the news, trading becomes much more rational and familiar. However, knowing that these big movers exist from previous news plays, keep them on radar for the next big announcement and likely, next big move.
As always, for any questions on trading or anything mentioned in my articles, feel free to contact me: firstname.lastname@example.org