What kind of catalysts and overreactions I look for in my trades
Greetings, there are tonnes of ways to approach and play different catalysts and overreactions in the market. I’m going to throw out some of my favourite ones that I screen for. Hopefully at some point we can be vigilant of these—and many more—as a collective.
1. Earnings reports
Often huge, scheduled over-reactions that more often than not see retracement
especially a good company in a bull market that experiences a huge negative reaction e.g. recent Reddit earnings -22% was fully retraced in a matter of days.
In rare cases one can also gamble with particularly downtrodden stocks *that also have a history of overdelivering* eg Palantir was recently down 40% from highs and gave another stellar report, going up 30%
One could also take a bit of a gamble with extended stocks in a correcting market—during some earning seasons we often see back to back reports with stocks taking major haircuts. Statistically one can play these and come ahead enough.
2. Fearful narratives/news of “disruption”
Positive or negative news tend to pile onto each other and create a lot of both euphoria or panic. Don’t let the headlines or stock price movement hijack your emotions *Be greedy when others are fearful. And fearful when they are greedy*
E.g. master card and visa were both facing some downward pressure lately with threats to their global leadership with EU independence, etc. They’ve recovered already.
We also have the Nvidia deepseek scare, Covid, and everything in between
3. leaks/scandals
…often transient. People always fear reputation will never recover, but people are fickle and self serving
e.g. Crowdstrike outage, FB Cambridge analytica scandal, Elons political campaign on Tesla.
4. GeoPolitical scares
Whether a war or outbreak, most of the fears take on a life of their own and anticipate the end of the economy, it always blows over in one way or another… and the day it doesn’t—we got bigger problems.
E.g. COVID and the end of airlines/cruises
5. Heavy insider buying
6. Bottlenecks
e.g. memory/compute
7. Euphoria/bubble
One can either ride the hype wave or short the “pop”
- Meme rallies -e.g. OpenDoor, GameStop
- Hype cycles - e.g. legalisation of weed, ai companies—note that one of these was a hype about an essentially commoditised physical product and the other is scaling at an unprecedented rate and changing society forever
What catalysts are on your radar?