Stock Catalysts: What You Need to Know to Find HOT Trades

What has the power to move stocks in HUGE ways? Stock catalysts!

A stock catalyst is any information that can cause a stock’s price to move up or down. That can be news about the company, the industry, or even the world. It can be a lot of things.

And … some stock catalysts are stronger than others. And even the ‘best’ catalysts may not always work.

So how can you tell which stock catalysts have the power to move a stock? And which will fit your setups?

Stick around and find out. Today I’ll give you a thorough introduction to stock catalysts and specific examples. Plus, I’ll give you tips on how to identify strong catalysts so you can determine if they fit your setups.

Ready? Let’s go!

What Is a Stock Catalyst?

As I stated before, a stock catalyst is any information that causes a stock to move up or down dramatically.

Let’s break things down and get specific.

Often, a catalyst can be news that directly affects a company. These are known as hard catalysts.

Examples here could be news about the company’s earnings … It can be a change in the company’s executive staff … Or it may be something affecting its supply.

But because the world is so connected globally now, a lot of things can affect a stock indirectly…

These are known as soft catalysts. They can be anything from news that negatively affects a particular industry … to global or political events. The obvious example right now is how the coronavirus pandemic is affecting tons of different stocks and sectors.

Before we get even more specific, let’s take a deeper look at what makes a good catalyst.

What to Look for in Stock Catalysts

Yep, stock catalysts can cause stocks to move in big ways … but not all are equal.

Also, different catalysts can work for different setups. So you have to take the time to study and find which fit your particular setups.

But there are a few things that you want to watch for with all stock catalysts to determine if they measure up: volume and volatility.

Volume: How Stock Catalysts Boost Volume and Why That Matters

Volume is one of the most important things to evaluate a potential stock to trade.

Let’s face it … You don’t wanna buy a stock and get stuck holding it because no one wants to buy it back from you, right?

Volume refers to the number of stock shares that are sold or bought in a specific time period.

If a stock catalyst causes a stock to move, you want to make sure it has the momentum to sustain that move. An adequate increase in volume can indicate that a catalyst is generating enough momentum to form a trend. That can potentially work in your favor.

Just because a stock moves big doesn’t mean enough people are interested in it. If you end up buying a stock that not enough people want, you could lose big.

If the volume isn’t there, stay away!

Volatility: How Wild Moves Can Create Opportunity

Volatility is another key factor to look for when a catalyst moves a stock. It’s a measure of how quickly a stock’s price moves up or down over a given period of time. Basically, the faster it moves, the higher the volatility.

The huge price swings that happen with a good stock catalyst are opportunities for savvy, prepared traders.

If a stock isn’t moving enough for your strategy, ask yourself if it makes sense to take the trade.

Want to learn more about volatility? Check out “The Volatility Survival Guide” I created with my friend Tim Sykes for this crazy market.

Examples of Stock Catalysts

That all sounds great in theory, right? I want to help you better understand how it all fits together with real-world examples. 

Read on to see how real catalysts moved particular stocks. I included some recent examples to show you what’s been moving in the hottest market I’ve ever seen.

World Events

Nothing gets the attention of a smart trader like bad news.

I know that’s terrible to say … But if you wanna find opportunities in the stock market, you have to know what actually moves it.

News like war, natural disasters, and oil spills can be some of the strongest stock catalysts.

The Coronavirus Pandemic

If you’ve been following the market at all this year, I don’t have to tell you how powerful a catalyst the global pandemic is. This has been the best trader’s market in my 15-year career.

Look at Boeing Company (NYSE: BA) for example.

Many traders reported nailing the downside of this move.

BA was already moving down hard since the pandemic started. But on May 11, it took a huge nose dive on incredible volume. The catalyst? News came out that 46 of its plane orders were canceled.

Take a look at the chart…

Truth is, BA was already suffering after hefty issues with its 737 Max jets. But when the coronavirus pandemic grounded flights, BA took some hard hits.

Here are a few other sectors that moved on the global pandemic…

Virus Plays

COVID-19 isn’t the first virus to affect the stock market. Remember the Ebola scare?

But the COVID-19 virus impacted the entire global economy … So it’s definitely the largest.

It created the most powerful hot sector I’ve ever experienced. There have been so many great plays since March.

One of my top virus plays is Inovio Pharmaceuticals Inc. (NASDAQ: INO). This stock has been on a rampage since the beginning of the pandemic.

Remember when this was a penny stock at the beginning of the year?

On June 23, 2020, INO released news it won a $71 million contract with the Department of Defense. Since then the stock exploded past $33!

Stay-at-Home Plays

The COVID-19 virus has impacted the world so heavily that it’s created subsets of stock catalysts. One of those is stay-at-home plays. Global shutdowns have forced people to find new ways to learn, communicate, and work.

Businesses that can’t pivot are suffering badly, while others are taking advantage of the ‘new norm’ and thriving.

With so many people stuck at home, companies like Zoom Video Communications Inc. (NASDAQ: ZM) and Peloton Interactive Inc. (NASDAQ: PTON) are seeing huge gains.

I’ll say one thing about the current market … it’s definitely the most logical I’ve seen in terms of catalysts and stock moves. 

It just makes sense to me. People are stuck at home. So companies that help them continue life remotely are being rewarded for it. Take a look at Blue Apron Holding Inc. (NYSE: APRN)… 

Just months ago this stock was dead. We actually talked about its strikingly bad IPO. But what happened after we went on lockdown?

Everyone across the country needed food delivery. APRN shot from $2 to almost $30.

Can APRN sustain that high? Who knows. But it’s another great example of how powerful the pandemic catalyst can be in this market. 

Contract Winners and New Announcements

New product launches and contracts can mean trade opportunities. Ultimately, this news could increase the company’s value. Let’s look at some examples and sectors…

Electric Vehicles

Before the pandemic, I thought electric vehicles (EV) would be the next hot sector. That’s on hold … for a while, anyway.

I still think the action in the EV sector could be a big stock catalyst. It’s already heating up, and I think it can continue in 2020.

The demand for clean energy is increasing. And when Tesla (NASDAQ: TSLA) announced it was pushing forward with its electric trucks, the stock went crazy.

And when TSLA starts moving, other stocks in the sector can move. It’s all about those sympathy plays, like Workhorse Group Inc. (NASDAQ: WKHS).

WKHS is one of my favorite EV plays. It’s more affordable for smaller accounts … and the company is still a big player in the space.

On June 24, WKHS released news that it got a nod to begin ramping up its electric van production. That day, the stock was a little above $7. Since then, it’s shot up to over $20.

It’s not just about EVs either. Think about how many different companies feed the production and maintenance of electric vehicles. So when you think catalysts here, remember to think big picture and sympathy plays.

Government Contracts and Legislation

Sometimes the U.S. government awards a company with a big contract … and that can really get the stock moving.

Take Eastman Kodak Company (NYSE: KODK) for example…

On July 29, KODK announced a partnership with the federal government to start bringing medical manufacturing back to the U.S.

The partnership included a $765 million loan. The stock went from about $2 to nearly $60.

Legislation can be a stock catalyst too…

Weed Stocks

Weed stocks have been a hot sector in the past … We haven’t seen big moves in this sector for a while, but that could shift with regulation changes. This industry is still in its infancy.

Cronos Group (NASDAQ: CRON) is a good example of a weed stock play.

On January 1, 2019, the U.S. Farm Bill legalized the growing and processing of industrial hemp at a federal level.

That — along with a $1.8 billion deal with Altria (NYSE: MO) — helped CRON jump from the low $10s to over $25 in early 2019.

Earnings Winners

Earnings winners are some of my favorite stock catalysts. 

Each earnings season lasts about four to six weeks as companies stagger their reports.

That adds up to roughly 24 weeks per year for potential trades — almost half the year. There can be a lot of movement in these stocks. And if you’re a part-time trader, it can be one way to fit trading into your schedule.

And this catalyst can make for big moves. It’s all about those earnings winners.

But the term ‘earnings winner’ can be misleading. When traders refer to earnings winners, that doesn’t necessarily mean a company has solid financials. A stock can move inversely to its earnings statements.

Confused? Let me explain.

Let’s say an earnings report shows that the company made money. Well … maybe it didn’t make as much as the market expected. That could cause the stock to drop.

On the other hand, an earnings report could show a company lost money … But the loss wasn’t nearly as much as the market expected. This could cause the stock to jump significantly.

When it comes to trading earnings winners, focus on price movement. The market will confirm if it’s a winner if it’s accompanied by a big sustained move.

Let’s take a look at an example with Snap Inc. (NYSE: SNAP).

On April 21, 2020, SNAP released earnings after the market close. Its earnings per share was in line and it beat revenue expectations. By next morning’s opening, SNAP had jumped.

Combine Reasons to Trade

Remember, stock catalysts aren’t a guarantee that a trade will work. 

You should look for multiple reasons to build a case for a trade. Vet your setups so you can limit your risks.

One of my favorite stock catalysts is an earnings winner that breaks out to 52-week highs. 

If a stock moves big after a good earnings report and hits 52-week highs, it’ll probably attract more traders … And if it fits my setups, I’ll probably be trading it.

Other Stock Catalysts

Analyst Upgrades and Downgrades

Analysts at large firms make ‘buy’ and ‘sell’ picks for investors. 

Some analysts are more respected than others … and a lot of them are often wrong.

Sometimes an analyst upgrade or downgrade can get a stock moving, so make sure to do your research and watch for price movement. TipRanks is an add-on feature for the StocksToTrade feature — just one click and you can view analyst ratings for stocks!

Billionaire Plays

News that a billionaire is investing in a company can get the stock moving. Investors and traders like to know they’re following the smart money.

Be careful with this catalyst … You never know when a billionaire will sell their shares.

How to Identify Stock Catalysts

There are different ways to find stock catalysts. Which is right for you depends on your expertise, account size, and how much time you have to research.

Watchlists

At StocksToTrade, we have a weekly watchlist we send to our members … and get this. It’s NO COST! For us, it’s all about your education. 

Every Sunday we send a list of top stocks directly to your inbox. It includes detailed analysis, stock catalysts, and why each stock is a trade candidate.

It can help you find opportunities quickly and build your own watchlists. This is a great option for part-time traders and any trader who needs a little extra help.

Sign up for our weekly watchlist here!

Use a Stock Scanner

Use a scanner to watch for stocks that fit your preferred criteria.

No secret, I use StocksToTrade and keep multiple scanners running whenever I’m trading. 

What’s great is that it has a news feed to show me if a particular stock is moving on news. Then I can do further research to find out if it’s a good stock catalyst. And the move fits one of my setups, I make a trading plan.

If you aren’t using StocksToTrade and would like to try it out, get your 14-day trial for only $7.

Use Twitter

Twitter can be both a key source of trading information and a stock catalyst. So many traders and market pros use it to share trading thoughts and ideas. And lots of promoters use Twitter to pump stocks. You can play those pumps, both long and short, if you understand how they move. Be prepared — they can move FAST.

Twitter can also be a great way to search for stock catalysts. And if you use StocksToTrade, we make it easy. We have a Twitter feed of all the tweets that mention the stocks on your watchlist right on your dashboard.

Chat Rooms

Your typical trading chat room can get noisy. Inexperienced traders can fill the room with crazy advice. It can lead to unwise trading decisions.

At StocksToTrade we just released the new Breaking News chat room. It’s specifically focused on alerting stock catalysts to our members faster than anyone else.

It’s not your average chat room. Two highly seasoned stock market pros work throughout the trading day to alert members of news alerts to help them spot trades quickly. It’s a game-changer in this insane market.

Get a 14-day trial of StocksToTrade and the Breaking News Chat for just $17 today!

Stock Catalysts: The Bottom Line

That’s a wrap on your introduction on stock catalysts, including specific examples. 

You also have tips on how to identify strong catalysts and determine if they fit your setups. Now, you gotta go practice.

Trading is a lot like learning to drive. You can read about it all you want … but until you get behind a wheel and practice, you won’t get good at it.

Need help learning more about catalysts and finding hot plays? Join the SteadyTrade Team. Every day we provide you with mentorship, trading education, and community. It’s all to help you build a process and become a smarter trader.

What are your favorite stock catalysts? Leave a comment!