Night Time is Right Time

Fresh news leads to fresh moves in stocks.

Fresh news on stocks is released after hours or before market open. The news often results in moves in those stocks next day or on day of news.

Fresh news leads market participants to reevaluate the prospect of the stock. This leads to buying or selling. Once that gets going momentum often feeds on itself as day traders and breakout traders notice the stock.

Story Stocks or Stocks in Play

Day traders thrive on such news plays or as they call it "Stocks in Play" or “Story Stocks”. There is an entire industry to collect and distribute such news.

Most stock market sites have news scroll. News is continuously displayed on it. Some traders use paid services that distribute news faster than the free services.

Look for game changing news on stocks

There is news and then there is game changing news. We are primarily interested in game changing news.

Many news based moves can be just one day affair. In some cases they can signal the start of multi day/week/month moves.As swing and position trader you want to focus on those kind of situations.

Game changing news is news that leads to market participants fundamentally re evaluating the prospect of the company for longer term holding. If such news is a major surprise to market, then you will find a big multi week or multi months move in a stock.

Earnings can be game changer for a stock

One kind of news that has potential for big moves lasting months is earnings news. If a company announces surprisingly good or bad earnings, then that news has potential to set off a big rally or end a rally.

In after hours primarily focus on after hours earnings announcements. If a earnings is good or bad, you will see big move in after hours. Primarily focus on stocks that are up 2% plus on 50000 plus volume in after hours.

If there is a genuine game changing catalyst you will see lot of volume in after hours. This is also true of before open.

The after hours earnings play give you time to research and decide your strategy if it is for longer term position trades like for Working People portfolio.

Look for prior neglect on stock

When you look at an earnings candidate, look at the prior trend on that stock. Earnings surprises for longer term holding works best on a stock that has multi month or multi year neglect.

Neglect will reflect in no big rally pre earnings. A extended sideways trading period or a down move coming in to earnings.

Neglect will reflect in volume. Often stock might be trading below our liquidity threshold of 100000 per day pre the earnings catalyst. Once catalyst comes in buyers rush in and liquidity follows.

Best type of neglect is when a stock since its IPO has never had a big rally and is forgotten by market, then it comes out with surprisingly good or bad earnings. That kind of “virgin” stock will make the most powerful move.

No analyst coverage and no news flow for months leading into earnings is also an  indicator of neglect.

Look for first or second big surprise

When looking at earnings surprise look for first or second big earnings surprise. Those typically lead to big rallies as market participants are not positioned for that surprise.

Third and fourth earnings surprise most of the time are priced in or are tricky as they often lead to big gap and then reversal. The exhaustion gaps or island reversals on third or fourth big earnings surprise are something to be skeptical off especially if stock has been rallying in to earn ings.

Look for earnings surprise on low float stocks

Stocks with float below 25 million can make explosive move on earnings. Smaller the float and larger the magnitude of surprise more explosive the move likely to be.

Small float stocks can make dramatic moves post earnings as buyers chase small number of stock available for trading.

Some of the most spectacular moves in earnings tend to happen on stock with float below 10 million.

Neglect+surprise+low float = explosive move

Other news catalyst that can move stocks

Besides earnings other news can also lead to big rallies. But trading them require more research as against straightforward and easy to understand catalyst like earnings.

CEO change

CEO change is one kind of news that can often lead to start of new rally if market perceives that CEO as good for the business. For example YHOO started rallying once Marissa Meyers was announced as CEO. Similarly HPQ started rallying on CEO change news.

Activist investor stake

In recent years activist investors (big hedge funds) have been taking stakes in troubled companies and forcing management to make strategic changes.

These kind of stocks are in downtrend pre the stakes by the fund. They often can rally violently post such announcement.

Recent example of this is HLF  or WBMD . In both cases activist investors too big stake near 52 week low and that started multi month rally.

Biotech/Drug approval  or rejection

Biotech and drug stocks in development stage are concept stocks. They often have no sales or earnings but drugs in pipeline which are “likely’ to become big sellers if and when they get approved.

New product launch

Many times this is anticipated but sometime market is genuinely surprised by new product and can start rally.

Retail sales trends

Every months retailers announce their sales trends. This information is like earnings news. Based on sales surprise these stocks can rally big. Again best situation is prior neglect and then a surprise.

IBD Mention

Pay special attention to stocks highlighted on front page on Investors Business Daily. A good growth stock with game changing catalyst will invariably be highlighted on front page if the earnings is game changer.

If you are working person with very little time, just focus on stocks highlighted on front page and you will capture 2 or 3 big winners in a year.

Stocks highlighted in New America or other columns can also sometime rally next day but those rallies may be short term rallies.

Seeking Alpha (SA) Mentions

In last few months I have observed many stocks making big moves based on articles published on SA.

There are some genuinely good researchers/traders on the site who highlight neglected turnaround kind situations after they take positions in them. That often leads to start of rallies. For example look at ZIPR in last few days.

But there are also lot of pump and dump kind of articles . Often they have provocative headlines like can this stock triple and 2 to 3 pages of plausible analysis. But many times the authors objective is achieved once the stock pops on the publication of article and they sell in to those rallies having bought the stock before publication.

RSOL is recent example of this . Stock went up 700% in 2 days based on some thinly researched article on SA.

Fresh news leads to fresh moves on stocks

And lot of fresh news is released after market close. If you want to find big movers , research that news and moves.

So for all night owls, use your news skills and put summary of your game changing news on Timeline.

If you do all this work in the night you may not have much time left for other nightly activities.

And don’t blame me if your husband/BF or wife/GF starts complaining about your nightly activities…..