How do you trade the news, from takeovers to Fed decisions?
It’s easy to feel like the day’s headlines just make the investing landscape more muddled. How do you sort through the noise and turn the morning paper into profits?
The first thing you should do, every time a story breaks, is ask the question: is this news already priced into my stock, or is there still money to be made?
Guy Adami says when a story crosses that directly affects a stock he owns, he looks at what the stock has been doing leading up to the news story. Look at the P/E compared to the company’s competitors and look at the trading volume, he says. If there is big trading volume leading up to an event, chances are that people knew it was coming and there’s a lesser probability of a price change. Microsoft (MSFT) is a perfect example of this, Guy says. If you read their chart from July 2006 to January of this year, there was a huge run-up in the stock in anticipation of the Vista release. But the Vista news was already priced into MSFT shares, he says, and it was actually a great opportunity to sell. Big volume before a trade generally means the stock is less likely to get momentum out of the trade.