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We've setup the scenarios to find event catalysts. But it's important to know there are other events happening that could get in the way of the stock price moving in the expected direction - the most frequent being earnings announcements.

Companies sometimes announce a bad earnings quarter at the same time as they announce a positive event, like a big dividend increase. An earnings announcement that fails to meet the expected amount can take the share price down, so it's important to keep an eye on whether the stock is reporting earnings the same day.  

This is why we add the next earnings date in the event alert - so you can be aware of the confounding event. We also have the earnings dates on the application in the calendar section. 

For bullish scenarios, the win rate is typically affected by the earnings announcements and sometimes by the guidance the CEO provides for how they think the company is going to perform in the coming quarters. Keeping on eye out for these negative factors will leave you with a much higher group of winning trades.  

The flip side here is that many times, the reaction to a slight earnings miss is overdone. The traders, not the investors, are controlling the price action and they dump the stock at the first sight of the words "missed earnings estimates."

For companies operating with positive cash flow, growing revenue, increasing earnings, and other positive event catalysts, this overreaction can mark a great entry point for a swing trade or longer term hold. 

SIZE MATTERS

It is difficult to know how companies are performing and what company leaders anticipate for the companies they run. The CEOs have to put on a good face when speaking about the companies they represent. And their communications team makes sure of that. So how can we determine whether a company will perform well in the future?

Dividends are one way. A company giving away its money to shareholders is typically a company with stable enough revenue in the present and forecasted future to enable it to provide capital back to its owners. If the leadership thought the company was about to take a huge hit to profits, they would not be increasing the dividend.

The bigger the dividend increase, the more confident leadership is in its cash flow situation. However, the size of the dividend before the increase matters.

A company increasing its dividend by 100% from 1 penny a share to 2 pennies a share doesn't make much difference to an investor. But a company with a $4.00 dividend increasing it 25% means an extra dollar per share per year for every shareholder. For a holder of 1,000 shares, that's $1,000 more a year for doing nothing but holding the stock.

In the dividend increase scenario, the biggest share price movements follow the biggest increases in the dividend amount. And over the longer term, these companies raising dividends by large amounts tend to perform well. A look back at energy companies in 2021 and 2022 can easily show these patterns.

For example, ConocoPhillips (pictured above) increased its dividend in October 2020 - right as the price of oil had recovered from epic price falls and the energy sector was about to go on to have a huge bull run. Notice the event impact on the day of the announcement was not positive due to other macro events of the day, but the follow-on price action over the subsequent years was spectacular. 

MARKET SENTIMENT MATTERS

Some days the market sentiment just stinks. This is usually caused by macroeconomic events, such as Fed rate hikes, wars, policy shifts, poor economic reports showing slowing growth or negative GDP growth, escalating tensions between nations, or bad earnings reports from companies deemed bellwethers e.g. FedEx, Home Depot, Boeing, Visa, MasterCard. The negative sentiment can cause the broader indexes to decline pre-market before the open in the futures market.

Negative sentiment affects the way stocks trade as investors are less likely to trade optimistically on those days. Some days, bad sentiment can ruin the typical reaction to bullish events. On these days, sometimes even the best, most bullish events have muted response from the market. 

To avoid losing money, check the futures pre-market before trading bullish events. If the S&P 500 index futures are down 1% or more, it's best to trade bearish events these days or at the very least, wait until the sentiment reverses to trade bullish events.

The published win rates per scenario are typically most impacted by market sentiment. If we controlled for it in the win rate analysis (by only looking at event reactions when the market sentiment was positive), the win rates for bullish scenarios would seem much higher. 

Join LevelFields now to be the first to know about events that affect stock prices and uncover unique investment opportunities. Choose from events, view price reactions, and set event alerts with our AI-powered platform. 

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