Big moves need big surprises | stockbee


Big moves need big surprises

Last night Facebook (FB) earnings were released and the stock was up double digit in after hours and is likely to open up 18% from yesterday. Earnings surprise lead to this move.

FB is a stock that had big earnings surprise in August 2013. We bought it in Working People Portfolio on the earnings breakout. Subsequently added January 70 strike 2015 LEAPS to the position. The position is still open in Working People portfolio.

Working People Portfolio Open Positions

While on day to day basis I look for short term swing moves of 8 to 20%, I also look for big trades that can make the year. 

Finding big moves like this requires different kind of skill.

Stocks need no catalyst or just a minor catalyst to make 8 to 40% move. Such momentum burst require no special skills to trade once you understand the basic mechanics of swing trading. 

Trading big moves requires understanding of catalyst and growth investing . Most big moves start with a big surprise. 

When a stock makes 100 to 1000 % move , there is always an identifiable catalyst behind these moves. 

Most common catalyst that can lead to explosive multi quarter or multi year moves are:

  1. big Earnings growth
  2. big Sales growth
  3. big orders
  4. big shortages (especially in commodities sector)
  5. big govt policy changes
  6. drug trial or approval news in drugs/biotech sector
  7. big management change
  8. big turnaround in business
  9. big activist investor move
  10. big sector move
These kind of big moves in stock are precipitated by some sort of an Episodic Pivot. Episodic Pivots are significant events in the lifecycle of a stock that results in significant re evaluation of the future prospect of the stock. If you search this site you will find detailed discussion on how I daily look for such Episodic Pivots in systematic fashion.

If you want to find big moves like FB right at the start of their  move look for big surprises daily. One or two trades like these can make your year. 

No comments: