So I'm just trying to get as much information as I can before I start trading but what kind news is guaranteed or at least has a great chance to push the price upward? the reason is because I've seen moments when news that you would think would push the stock up but instead it either plummeted downward or just stayed the same any advice would be most appreciated. :)
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If we had an answer, do you think we'd give it away for free? Think about that for a moment as more than a few market timing newsletters exist that claim to know what will go up.– JB KingDec 30, 2015 at 18:35
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"Penny stocks" is often taken to imply more of speculation (for example, swing trading) than longer-term investing (whether you are a "value investor", "dividend investor", or some other variant). If you need to ask this type of question, you should ask yourself if you have the knowledge to outsmart people who do this for a living.– userDec 30, 2015 at 18:50
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2 Answers
There is a highly related question which is much easier to answer: what normally value-increasing news about a company would cause that company to fall in value in the public stock market? By answering that, we can answer your question by proxy.
The answer to that question being: anything that makes investors believe that the company won't be able to maintain the level of profit.
For example, let's say a company announces a 300% profit growth compared to the previous year. This should push the stock upwards; maybe not by 300%, but certainly by quite a bit. Let's also say that this company is in the business of designing, manufacturing and selling some highly useful gadget that lots of people want to buy.
Now suppose that the company managed such an profit increase by one of:
- firing its engineering department,
- selling off its manufacturing machinery,
- or by their product being named Product Of The Year in an applicable category
In scenario 1 (firing the engineering department), it is highly unlikely that the company will be able to come up with, manufacture and sell a Next Generation Gadget. Hence, while profit is up now, it is highly likely to go down in the months and years coming up. Because stock market investors are more interested in future profits than in past profits, this should push the value of the company down.
In scenario 2 (selling off the machinery), the company may very well be able to come up with a Next Generation Gadget, and if they can manufacture it, they might very well be able to sell it. However, no matter how you slice it, the short-term costs for manufacturing either their current generation Gadget, or the Next Generation Gadget, are bound to go up because the company will either need to rent machinery, or buy new machinery. Neither is good for future profits, so the value of the company again should go down in response.
In scenario 3 (their product getting a large boost), the company still has all the things that allowed them to come up with, produce and sell Gadgets. They also have every opportunity to come up with, manufacture and sell Next Generation Gadgets, which implies that future profits, while far from guaranteed, are likely. In this case, the probability remains high that the company can actually maintain a higher level of profit. Hence, the value of the company should rise.
Now apply this to a slightly more realistic scenario, and you can see why the value of a company can fall even if the company announces, for example, record profits.
Hence, you are looking for news which indicate a present and sustained raised ability to turn a profit. This is the type of news that should drive any stock up in price, all else being equal.
Obviously, buyer beware, your mileage may vary, all else is never equal, nothing ever hits the average, you are fighting people who do this type of analysis for a living and have every tool known available to them, etc etc. But that's the general idea.
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1I wish those people downvoting this answer would leave a comment explaining what they think is wrong with the answer. It's hard to fix it when there's no indication of what to fix.– userJan 1, 2016 at 18:23
You should not trade based on what news is just released, if you try you will be too slow to react most of the time. In many cases the news is already priced into the stock during the anticipation of the news being released. Other times as soon as the news is released the price will gap up or down in response to the news.
Some times when you think that the news is good, like new record profits have been achieved, but the share price goes down instead of up. This may be due to the expectation of the record profits by analysts to be 20% more than last year, but the company only achieves 10% more than last year. So the news is actually seen as bad because, even though record profits, it hasn't met expectations. The same can happen in the other direction, a company may make a loss and the share price goes up. This may be because it was expected to make a 50% loss but only made a 20% loss due to cost cutting, so this is seen as a good thing and the price can shoot up, especially if it had been beaten down for months.
An other example is when the Federal Reserve in the USA put up interest rates earlier this month. Some may have seen this as bad news and expected share prices to fall, but instead prices rallied. This was actually seen as good news, firstly because it had been expected for a long time, and secondly and more importantly because a small rise in interest rates after many years of near zero rates is a sign of the economy finally starting to improve. If the economy is improving, that means more people will have jobs, more people will be spending more money, companies will start to make higher revenues and start to expand, which means higher profits and higher share prices.
A better way to trade is to have a written trading plan and use technical analysis to develop a set of buy and sell criteria that you follow to the tea. Then back test your trading plan through various market conditions to make sure you get a positive expectancy.