If you want to keep track of trading opportunities, you definitely need to stay on top of the news.
Certain news stories have the potential to be catalysts. That means they can cause stock price movements that savvy traders can learn to spot early on … if they’re vigilant.
News catalysts should be a fundamental part of your stock research. They can help you spot rising trends and trend reversals. It’s one more aid to help your trading choices.
Some common catalysts should be on every trader’s radar. Earnings reports, product releases, new contracts, and big-name new investors … that’s just the short list of news worth tracking.
So how do you trade on a catalyst? First, educate yourself.
Here’s your quick primer on news catalysts: what to watch for, critical considerations, and how the news can help you decide if a stock is worth your time — and money.
Examples of News Catalysts
Here’s an overview of news catalysts that can spark stock price changes:
Earnings Reports
Right after a quarter draws to a close, public companies release earnings reports. Since companies announce their earnings during a small time window, the period at the end of every quarter is typically referred to as “earnings season.”
Earnings reports can give you insight into a company’s past performance, future expectations, and goals. These reports can also include historical data and projections. It can give you an overview of where the company’s expected trajectory.
For example: When a company meets or exceeds expectations, it usually ignites optimism. Investors grow excited that an upward trend is on the horizon. And as more people buy in, that can push a stock’s price up.
On the other hand, failing to meet expectations — without a solid reason — often leads to pessimism. That can trigger a downtrend, causing the stock price to fall.
Product Releases
When a game-changing product hits the market, it can be a newsworthy event that leads to rising stock prices …
Think of it like this: Remember Apple’s 2007 iPhone launch? It was near impossible to avoid any mention or news about the smartphone. And then Apple’s stock value more than doubled?
Coincidence? Nope.
Let’s be real. Not every product is as momentous as the iPhone. That fledgling smartphone was at the forefront of technology, and it’s held up to the test of time.
So when you look at a new product, consider a few factors. Will it have longevity in the market? Will it be released in a hot theme? Is it new, unique, or cutting edge? Has the product been tested?
And, do people want to buy it?
New Contracts
Did the company just sign a new contract? That alone can bring growth. But big news around the contract can also garner more attention. And that can lead to changes in the stock price.
Here’s an example: The emerging 5G sector is generating major buzz …
So let’s say a manufacturer lands a contract with a mobile phone service provider to build antennas in support of the new technology. The potential increase in business and revenue can lure more buyers. And that can drive the manufacturing company’s stock value up.
That said, think smart before making any moves. Just because a company lands a new contract doesn’t mean you should buy up as many shares as possible.
Dig deep and thoroughly vet the company. Check out the contract terms, including the revenue. Consider whether the contract could spur long-term growth.
Big New Investor
When a big-name investor gets involved with a company, it can signal growth and potentially cause the stock price to rise.
Think about it … If a billionaire investor pours money into Company X, it usually generates positive buzz about the company’s viability as an investment.
But don’t rely on this news alone. Always do more research. Sometimes the news is pure hype, but it could indicate that the stock has potential. Here are a few questions to chew:
Will the cash influx poise the company as a market leader? What are the investment conditions? What do the company’s future plans look like now?
Ask yourself these important questions before you make a trade.
News Catalyst Considerations
Here’s a look at a few essential considerations as you monitor catalysts:
Theme Plays
Traders want to be at the front of a trend. Theme plays can potentially help you do that.
When a news catalyst is associated with a specific company, it can trigger a ripple effect. Interest in an entire sector may ride that wave up. And it can spin a whole group of related stocks into motion …
The trends can be short-lived, but smart traders can often find opportunities.
Do Your Own Research
Not every new catalyst drives stock price movement. Nothing’s ever guaranteed. Judging a news catalyst at face value without digging deeper can lead to poor investment and trading decisions.
News can be biased — especially press releases. Companies will talk up new products, investors, or partnerships. That’s just good business.
And they won’t highlight any negatives, even if they’re struggling.
You have to do your own fact-checking if you want to make educated decisions. There’s just no getting around it. So make sure to do your own research before committing any of your own money.
And always remember to build a solid trading plan.
SwingTrades With Paul Scolardi
I’m Paul Scolardi. I specialize in finding momentum stocks before they peak.
My goal: To find hot contenders for swing trades, then buy low and sell high.
In my SwingTrades program, I guide my students through my methods for finding stocks with the potential to peak in the near future. Join us today.
What’s the biggest new catalyst you caught and used to make a trade? How do you track market news? Leave a comment!
