WHY YOU SHOULDN’T IGNORE

HEADLINES
IN TRADING
Index

Why You Shouldn’t Ignore Headlines In Trading .................................. p. 1

Fundamental News Moves The Market ................................................... p. 2
Headlines Gauge Investor Sentiment ...................................................... p. 2
Investors Tend To Buy The Rumor............................................................. p. 2
Algorithms Sell The News ............................................................................ p. 2
Headlines Provide Historical Context ...................................................... p. 3
News Causes most Pre-Market and After-Hours Moves .................... p. 3
Ratings Changes Cause Temporary Spikes & Declines ...................... p. 3
News Creates Sympathy Plays ................................................................... p. 4
But Some Sympathy Plays Are Delayed.................................................. p. 4
Headlines Move Stocks ................................................................................. p. 4
Costly Investments ......................................................................................... p. 5
Dictionary of Terms ........................................................................................ p. 6
About Benzinga Pro ....................................................................................... p. 9

BENZINGA PRO Why You Shouldn’t Ignore Headlines In Trading GO TO INDEX ^

Why You Shouldn’t Ignore Headlines In Trading
by Louis Bedlglan

Between earnings releases, investor meetings and company statements,

traders might think they have everything covered. But those who ignore daily
headlines are missing a world of opportunities to increase their returns.

“News has always moved stocks,” said Dennis Dick, a proprietary trader for Bright Trading LLC.
“You can go back and look 15 years ago or 20 years ago or even go back further than that. Now
it’s become a game of whoever can get the news the fastest can benefit from it.”

News is more than just a series of promos and announcements. It can reveal new trends, new
details and provide essential information that would be missed by those ignoring the headlines.

“If you’re doing short-term trading, you have to be glued to the news that’s coming out,” said Joel
Elconin, an independent trader formerly at Bright Trading and the Chicago Mercantile Exchange.
“You could have the most bullish position in Twitter, but if something happens that’s negative on
the stock, that’s where the stock is gonna go. The headlines are gonna make an impact.”

The value of headlines should not be understated. All traders — short-term or otherwise — can
benefit from the news each day.

“Even for a deep fundamental investor who may not buy or sell for months or years,
a major news item (which will undoubtedly impact company operations) will create a
situation where that investor has to potentially rethink his long-term thesis,” said Brent
Slava, senior newsdesk analyst at Benzinga Pro.

Headlines can also serve as a catalyst for traders to dig a little deeper.

“This is another way to find a level of arbitrage for people who are blindly trusting a headline,”
said Garrett Cook, head of research at Benzinga Pro. “When you dig down, you find that maybe
a company didn’t meet their primary endpoint and that wasn’t in the headline. That gives you an
opportunity to trade around.”

These are just a few reasons to trade the news. Read on to see the top 10 reasons why you
shouldn’t ignore headlines.

1
BENZINGA PRO Why You Shouldn’t Ignore Headlines In Trading GO TO INDEX ^
10. FUNDAMENTAL NEWS MOVES THE MARKET
From earnings and product announcements to management changes and other company
developments, Elconin said that fundamental news moves the market.

“No matter what technical setup you have, if there’s news specific to your area, it’s gonna
move an issue that you’re trading,” said Elconin.

9. HEADLINES GAUGE INVESTOR SENTIMENT

Cook said that headlines can also be used to gauge investor sentiment.

“In situations like we have right now in the market, people are writing very bullish headlines,”
Cook explained. “There’s not a reason not to. Maybe the story is good, but there’s a clear
dominance of bullish-driven headlines in the market today.”

Cook believes this speaks to the current level of market sentiment.

“If you take a look at other inputs, this may help you understand the sentiment behind a writer,
which may help you better understand the depth of his analysis,” Cook added. “If he tends to be
happy and kind of fluffy, maybe he’s not doing deep digging. Whereas if you have somebody
who’s a little more negative, a little more bearish, maybe this guy was asking tougher questions.”

8. INVESTORS TEND TO BUY THE RUMOR

There were rumors that Twitter would replace CEO Dick Costolo long before he announced
his retirement. Those rumors proved to be true, so investors could have benefited by paying
attention to the unconfirmed headlines.

“The thing with Twitter is, everyone thought it would be great for the stock — and it was,
momentarily,” said Elconin. “But then when the headlines are digested, that means there’s
something not going right in the company and they needed to make a management change. That
means they’re still struggling.”

Thus, Elconin said the initial headline was something that “everybody had been waiting for,”
as proven by the spike. But when investors took a closer look and analyzed the situation more
carefully, traders realized that Twitter was a company in transition that hadn’t found its way yet.

7. ALGORITHMS SELL THE NEWS

Dick stressed the importance of market-moving headlines, which are more significant than
investors may realize.

2
BENZINGA PRO Why You Shouldn’t Ignore Headlines In Trading GO TO INDEX ^
“Sometimes there are opportunities to dig into the details because something happens, what I
call these ‘news algo overshoots,’ where they basically come in and buy the stock on the headline
news,” said Dick. “All of a sudden, they’ve misinterpreted the news or missed a piece of guidance
and there may be an opportunity for you to fade some news spikes.”

6. HEADLINES PROVIDE HISTORICAL CONTEXT

Slava said that headlines provide historical context that shows how a meaningful event can
impact price.

“A newswire, such as Benzinga Pro, can provide investors with endless research,” he said. “Think
of the platform itself as a mine and each headline (or full-length story) as little nuggets of data
which need to be extracted to see the value. Correlating specific types of news items to a price
move can help a trader in not being caught off guard when an unexpected news item breaks.”

For example, Slava said a trader could consider how a company like General Electric moves
immediately after a dividend increase is announced. The trader could then compare the move to
how it performs a week later, a month later and so on.

5. NEWS CAUSES MOST PRE-MARKET AND AF TER-HOURS

MOVES
Dick said that he is always eager to see the headlines when a stock is moving during premarket
or after hours trading.

“What is this moving on? If there’s nothing moving on it, maybe it’s order flow or something
else happening, but usually it’s a headline moving a stock,” said Dick. “This is a headline-driven
market.”

4. RATINGS CHANGES CAUSE TEMPORARY SPIKES & DECLINES

Elconin said there are a handful of big banks — such Goldman Sachs, Morgan Stanley, JPMorgan
and Bank of America — that can make an impact just by changing the rating of a particular stock.
The result might be a temporary spike or decline, but it is yet another reason why investors must
keep an eye on the news.

“Chances are if Goldman Sachs upgrades a stock to its Conviction Buy list, you’re not gonna
make a lot of money shorting it that day,” said Elconin. “On the other hand, if you had a long
target, then you can use that headline to your advantage, because it may have a temporary pop
based on the Goldman move.”

3
BENZINGA PRO Why You Shouldn’t Ignore Headlines In Trading GO TO INDEX ^
3. NEWS CREATES SYMPATHY PLAYS
Traders have surely noticed that a stock can move quickly (instantaneously, in some cases) and
achieve a new price level after news breaks. This could provide an opportunity for other stocks in
the sector.

“If Coca-Cola comes out with news, Pepsi might have a sympathy move,” said Dick. “Or if
JPMorgan comes out and says, for whatever reason, trading was bad this quarter, your other
stocks — Citigroup, Bank of America, Morgan Stanley, Goldman Sachs — might have a sympathy
move off those, too.”

2. BUT SOME SYMPATHY PLAYS ARE DELAYED

Not all sympathy plays immediately follow a stock move. It could take investors some time to
react. This is another reason why investors must watch the headlines — to know what’s going on
and to confirm if a sympathy play has actually happened yet. This can help an investor determine
if there’s still time to get in or if the play has already been missed.

“Even though sometimes the stock instantaneously moves to a new pricing level, sometimes the
sympathy plays can take a minute or two to move to these new pricing levels,” said Dick. “And if
you got a good newsfeed like Benzinga Pro, which would be great for this, you can trade off of
that.”

1. HEADLINES MOVE STOCKS

There are an infinite number of things that investors could miss if they ignore the news. “There’s
so much involved in every headline,” said Cook. “Anytime you can dig in to find the opposite of
what the headline is showing, that’s a benefit.”

Simply put, Dick said that headlines move stocks.

“That’s the number-one reason to trade headlines,” said Dick. “This isn’t a new phenomenon.”

Elconin said there has always been rumors and innuendo in the market. Dick concurred, adding
that headlines have moved stocks since the beginning of the stock market, but they haven’t
always been easy to come by.

4
BENZINGA PRO Why You Shouldn’t Ignore Headlines In Trading GO TO INDEX ^
COSTLY INVESTMENTS
Investors rejoiced when technology advanced and investors they could finally obtain a real-
time news solution. Unfortunately, Bloomberg Terminal and other available options were cost-
prohibitive for most individuals.

“It’s not really reasonable for somebody that’s part-time or even full-time to spend that kind of
money,” said Dick. “Obviously, with companies like Benzinga that can offer the news at a fraction
of the cost, it’s a big advantage. It really brings the news to the little guy.”

Before joining Benzinga, Cook used Benzinga Pro as his primary news source.

“The great thing about Benzinga, and I can completely attest to this, is it enables people like us
to get the information flow and the speed of Wall Street into our desktops away from the major
market centers,” said Cook. “We’re trying to make it easier for those who can’t afford a Bloomberg
terminal to come and play the game and have an opportunity.”

In the end, it was Benzinga’s integrity that attracted Cook to the company.

“We’re here to help finance, not just get a paycheck and go home.”

5
BENZINGA PRO Why You Shouldn’t Ignore Headlines In Trading GO TO INDEX ^
Dictionary of Terms

ARBITRAGE
Arbitrage represents a skew in information from one side to the other. It occurs when there are
inconsistencies in the market. This can apply to a discrepancy in price (ex: a stock that sells for
$10 in the US vs. €5 in Europe) or information (ex: Trader A catches something that Trader B does
not).

BEARISH
A bearish investor has a negative outlook on the market and believes prices will fall.

BULLISH
A bullish investor has a positive outlook on the market and believes prices will rise.

BLOOMBERG TERMINAL
Bloomberg Terminal is a self-encompassed trading, news and analysis platform.

CONVICTION BUY
Conviction Buy recommendations are used to give extra credence to Buy-rated stocks. For
example, a bank could have 200 different Buy-rated stocks but only 20 of them may have a
Conviction Buy recommendation.

MARKET STRUCTURE
Market structure represents the logical patterns that occur when a user places an order. It is, in
essence, the infrastructure of a market.

NEWS ALGO OVERSHOOTS

A news algo overshoot occurs when an algorithmic trader overreacts to a news item or a
sympathy play on another news item.

PRE-MARKET & AFTER-HOURS TRADING

Premarket trading starts at 4:00 a.m. ET and refers to the trading hours that occur before the
Nasdaq and the New York Stock Exchange open. After hours trading begins at 4:00 p.m. ET and

6
BENZINGA PRO Why You Shouldn’t Ignore Headlines In Trading GO TO INDEX ^
signifies the trading period that occurs after the market closes.

Note: Premarket trading lasts until the stock market opens at 9:30 a.m. ET; after hours trading
concludes at 8:00 p.m. ET.

PROPRIETARY TRADER
A proprietary trader is someone who trades for a FINRA-registered brokerage using the firm’s
own money.

RATING
A rating is the recommendation (typically given by an analyst or broker) to Buy, Sell or Hold a
stock.

SENTIMENT
Market sentiment describes the way investors feel about the market. If prices are rising, investors
likely believe that the market is on its way up and might continue buying stocks. If prices are
falling, investors might have negative feelings toward the market and sell their shares.

Some investors use sentiment to take a contrarian approach and buy when the market is selling
or sell when the market is buying.

SHORT
Shorting is the act of betting against a stock, allowing investors to profit from declines.

Example: Let’s suppose that Company X is trading at $10 per share. If Bob shorts 10 shares of the
stock and it falls to $6, he will earn $4 per share (for a total profit of $40)

Unlike buying a stock (in which traders can only lose what they pay for each share), shorts have
infinite loss potential. If Company X rises to $20, Bob will lose $10 on every share he shorted. And
if the rise continues, he will lose money every day until he exits his position.

In order to take a short position, investors must also put up at least half the total value of the stock
they want to short.

7
BENZINGA PRO Why You Shouldn’t Ignore Headlines In Trading GO TO INDEX ^
SYMPATHY MOVE
Sympathy moves occur when company-specific news is expected to have an impact on more than
one enterprise.

Example: If Healthcare Company X offers to buy Healthcare Provider Z and their values increase,
other healthcare companies could rise as well.

Sympathy moves can also affect suppliers.

Example: If Tech Company B has a notable earnings miss, its component suppliers could take a
hit.

8
BENZINGA PRO Why You Shouldn’t Ignore Headlines In Trading GO TO INDEX ^
This guide was brought to you by Benzinga Pro:
Wall Street’s go-to for breaking headlines.
Approximately 93% more cost-effective than the leading competitors,
Benzinga Pro grants users access to accurate corporate data powering
major financial brokerages.

Benzinga Pro allows investors of all styles to build reliable models without concern that one-
time adjustments will distort projections. The cleanest figures allow traders peace of mind when
comparing data to analyst expectations.

Our analysts take the noise out of the market and publish only the most actionable 600 - 900
corporate news items per day; along with monitoring traditional outlets, The Benzinga Newsdesk
speaks with hundreds of companies, market analysts and hedge fund managers daily to generate
exclusive content.

With a coverage universe including the Wilshire 5000 (plus an additional 1,000 U.S. traded
stocks), Benzinga Pro provides clients with real-time news and expert market analysis, covering
everything from micro to macro-cap companies across all sectors.

While setting up and executing trades, Benzinga Pro makes it easy to stay on top of breaking
developments in the stock market and cryptocurrency exchange.

Our audio stream alerts clients to breaking news, rumors and unusual options activities so you’re
primed to profit. With unmatched caliber, unrivaled intelligence and investigative journalism,
Benzinga Pro features an all-inclusive, Newsdesk chat. During market hours, investors can readily
tap into our market analysts for answers and explanations to make their day-winning trades.

9
BENZINGA PRO Why You Shouldn’t Ignore Headlines In Trading GO TO INDEX ^