Part 1 – What has market moving potential?
Have you ever been in a long position that completely reversed after an earnings release? Or perhaps your trade’s bottom fell out after the FOMC Policy Statement? Or maybe you have seen your profits evaporate away after a scheduled economic data release? Finally, you anticipated a big move after a news release only to have the underlying stock make an initial surge and then fall back to the original levels or worse. Whether you are a short or long term investor, learning how market news will affect your open positions is a skill all traders should acquire. Entering or exiting a position or perhaps adjusting a stop based on news analysis is essential to maximizing your profits.
It is not only is important to have a system in place to analyze the possible future performance of a stock. However, one should also pay close attention to economic calendars, earnings calendars, etc. Any experienced trader will tell you that NEWS CHANGES EVERYTHING! News overrides even the best technicals. News will cripple the best trade plans if ignored. News trading involves the analysis of simple major economic indicators and timing positions or adjusting stops upon their release in the market.
In addition, it is also important to pay attention to the market sentiment leading up to the unveiling of the release/report. Analysts often provide “forecasted” figures and the previous released figures. Often times, it is not the actual release of the report that drives the market rather the speculation of a possible positive or negative effect. In most cases, speeches and news articles about a certain release may also drive the market more than the release; from my trading experience, the actual release has moderate impact on a certain stocks, but it is the speculation before the release is what the stock market moves the most. We’ve all heard the saying, SELL THE NEWS!
Since there are numerous indicators released everyday, not every release has a major impact. The following are the Top 8 market moving economic reports: Interest rate decision (speculation), Retail sales, Inflation (consumer price or producer price), Unemployment (Non-Farm Payrolls), Industrial production, Business sentiment surveys, Consumer confidence surveys, Trade balance, manufacturing sector surveys. These releases almost always have some immediate impact on a certain sectors, as they are known as the “market movers”.
In addition, you will find that analysts will release reports on a daily basis. The two that have the biggest impact are Upgrade/Downgrades and Target Raised/Cut. This is not the place to discuss the true intent of many of the upgrades/downgrades. It is just important to be aware that on any given day news may be released that can affect your trade.
Finally, you have a company’s earnings report. These reports are often loaded with a ton of data to be digested by traders. Did they meet their expectations? Did they earn enough money for the quarter? Have they raised or lowered their guidance for the remainder of the year. Were there any unknown charges that will affect future cashflow? For drug/biotech companies, you need to be aware the results of their experiments. Will the drug move on to the next stage or is it being cut.
So now that you have a foundation of what news to look for – trust me there are a lot more sector specific news releases that can affect your trade – let’s take a brief moment to talk about where to find this information. Here is a list of my favorite new sources:
- Trade The News
- Yahoo Finance
Now that you know why every trader should know what news release are scheduled for release each week – New Overrides Everything – we can begin to focus on some rules for identifying trade opportunities based upon the market’s reaction to the news release. Check out Part 2 of our series on How to Trade the News to learn the rules professional use as a part of their trade plans.