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'Fast Money': Nose for News

The crew looked at how to know when announcements are baked in.

The crew on CNBC's "Fast Money" TV show on Monday dealt with the question of whether traders can still make money when a news item is released - or is the announcement already priced into the stock?

Guy Adami said to look at what the stock has been doing before the news Also, if the trading volume is big before the news, then sell the stock. Jeff Macke said if the news is out in the popular press, it's already priced in.

Tim Strazzini said to look at precedents and see if other stocks have acted the same way. Eric Bolling says with the massive liquidity in the markets you can still get into a good story - even if you feel you're late, in today's markets you just might not be.

Trading Earnings

How should you trade earnings announcements, from blowouts to big misses? Strazzini said watch for which companies release early in the season, and see what happens to those stocks. As earnings season moves along, much of the news is already priced into the stock unless it is an industry leader.

Adami said the drug stocks are bad examples of following the early reports, because what's good for one might not be for another. But the broker stocks usually do follow each other, he said.

Bolling said earnings for the energy market are irrelevant because investors know how much money they're making since they follow commodity prices.

Trading Oil's Impact

How do you trade oil's impact when violence in the Middle East can send it skyrocketing or warm weather during the winter can send oil prices down? Bolling said low oil prices -- around $30 -- only come when the world economies are struggling, and oil reaching $100 would happen if there was a major geopolitical event. He said if that rise happened he would buy

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and other refiners, and gold.

Macke said investors should look at the price at the pump -- if it's higher year-over-year then it will hurt retailers. Strazzini said gasoline prices are worth 20% of earnings for chemical companies. Bolling said if you want to know where crude oil is going, just watch gasoline prices.

(RealMoney Take: Jim Cramer said recently, "The odd thing here is that when the energy stocks get hit -- and they do get hit off the decline in gasoline prices -- the market gets hammered. Today is a day where the hammering is more

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than

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." To read more on what Cramer said,

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)

Trading Industry Fundamentals

When trading retail stocks, Macke starts with same-stores sales, that data will show if a company is growing, and it will show momentum. Macke said you should also keep an eye on the number of stores, so that saturation isn't a problem.

When trading tech stocks, Strazzini said to always look at the profitability side of an earnings release. See how much market share a company has and if it's getting bigger or smaller.

When trading commodity stocks, Bolling said you have to know your geopolitics and the weather. When trading industrial stocks, Adami said look at the trend, then move up the supply chain with that trend to the associated name.

Chartology

Many traders look for patterns in stocks for clues to anticipating the future price. Bolling defined some charting terms that could help traders find the next fast money trade:

Island Reversal/Island Bottom -- This term is for when a chart shows a big gap down, then increased trading volume, then a gap back up. Basically, this shows the selling is finished. Bolling said the term comes from the idea that a trader can draw an island between the gaps on the stock chart.

Double Top -- This is a pattern on the chart that shows a peak at a certain price, then a failure, then another attempt at the previous high.

Oversold -- When a chart pattern shows signs of being oversold, and the stock has too many sellers and when the selling stops the buyers come into the stock.

How to Play the Market

The crew took some viewer questions: "What signs do you look for in the options market that might indicate a stock is a buy?" Strazzini said look for an increase in call volume in the front-month contracts. When you see increased volume in the out-of-the-money options, that's a tell that traders think the stock is going to trade higher. Another tell is increased volume on the puts by traders selling the puts.

"When is the best time to use a limit order and at what price should it be set at?" Adami said it depends on the sector, because some sectors, like biotech, are more volatile and should have wider orders.

"How can somebody separate what they like in retail from what companies are best for investing?" Macke says don't always think a good shopping experience means a good investment. He says look for stores that sell their goods at full prices and think like a consumer and a businessperson when you shop.

"What is the key technical indicator she should look for before making trades?" Bolling said start with point-and-figure charting.

Rules to Remember

Macke said learn to admit you're wrong and cut losses. Strazzini said never buy intraday puts and calls on breaking news. Adami said don't trade when you're angry or bored. Bolling agreed with Macke, and he said don't ever buy an ethanol stock.

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