Catalysts
Do you want to stay on top of the most promising potential trades? If so, you’ve got to stay on top of the news for potential catalysts that can move stock prices.
Watching for news catalysts that can move stocks should be part of your fundamental stock research — it can alert you to upcoming trends or trend reversals. Common catalysts I look for include earnings reports, new contracts, new product releases, and big new investors.
Here’s your primer on news catalysts, including what to look for, important considerations, and how they can help you determine whether a stock is worthy of your time.
Examples of Catalysts
Here are some examples of catalysts that have the potential to shake up stock prices:
Earnings Reports
Soon after the end of each quarter, public companies must release their earnings. The time after the close of the quarter when companies announce their earnings is referred to as “earnings season.”
Every quarter, there are certain expectations or projections detailing the expected performance of the company.
If the company meets or exceeds the expectations, it inspires optimism and excitement about the stock that might kick off an uptrend. On the other hand, if a company doesn’t meet the expectations and can’t pinpoint a good reason, it can have the opposite effect. That can potentially trigger a downtrend.
New Contracts
Has a company signed a new contract of note? This can cause a swing in a stock’s price.
For example, consider the emerging 5G sector. If a manufacturing company signs a contract with a major cell phone service provider to build new antennas for the latest wave of technology, the promise of increased business and revenue can attract buyers. That can raise the stock price.
But just catching wind of a contract isn’t enough to load up on shares of a particular stock. Be sure to do more research. You might want to check out the amount of revenue for the contract (if given), the time period for the contract, and whether it seems like it could expand in the future.
New Product Releases
A big new product release can be a newsworthy event that can drive a stock price up. Consider the case of the iPhone. In 2007, the year of the iPhone debut, Apple’s stock more than doubled in value. Coincidence? I think not.
Not every product release will be the next iPhone, though. Consider the longevity of the product in question. Is the product in a hot theme? Is it something new and unique? Has the product been tested yet? Are there any customer orders?
Big New Investors
A big new investor can be a sign of growth for a company and the stock price can follow.
For example, say a billionaire investor decides to take a stake in Beverage Company X. Suddenly, there’s plenty of buzz around this stock as this investment could lead to bigtime growth.
Once again, be sure to thoroughly research to help you better determine if the news is pure hype or if it has trade-worthy merit. Could the investment make this company a leader in their sector? Is the investment conditional? What are the company’s future plans?
Catalyst Considerations
Here are some important considerations when using catalysts as part of your fundamental research:
Theme Plays
Want to be the early bird who gets the worm? Look for theme plays.
Even if a news catalyst is tied to a particular company, it can create ripples in the market beyond just one single stock.
Let’s say there’s a compelling catalyst that moves one tech company. This can kick off a flurry of theme plays, where increased interest in the sector sets an entire group of stocks into motion. Keep in mind that these theme plays can be short-lived trends.
Always do your research
Just because a catalyst can move a stock price doesn’t mean it definitely will.
Catalysts aren’t foolproof, and you shouldn’t always take them at face value.
A lot of news, especially via press release, is strongly biased. Of course a company will talk up their new product, partnership, or investor. They won’t paint themselves in a negative light — even if they’re struggling.
This is why it’s important to do your own fact-checking. Dig deeper to make a more educated decision about whether to make the trade.
SwingTrades With Paul Scolardi
Figuring out market trends ahead of the curve has been my key strategy as a swing trader. By refining my methods and repeating them over time, I’ve become a self-made millionaire.*
News catalysts are part of my overall strategy for identifying opportunities, along with identifying sector leaders and finding hot IPOs.
Want to learn my methods? Consider joining my SwingTrades program.
I’ve taught my methods to over 1,400 students from over 50 different countries. Several students have reported six-figure profits — and I even have a reported millionaire in the mix! Of course, results may not be typical and may vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Any investment is at your own risk.
By joining SwingTrades, you can learn techniques to add to your trading toolbox. You can learn how to develop your own trading strategies.
How do you trade using news catalysts? How does it work with your strategies? Leave a comment and let me know!