Before the opening bell every morning it is important to watch the news that comes out from different companies. This allows us to see who the potential large percentage gainers or losers are. As a general rule, I want to see how the stock trades on that news within the first hour of trading. If the company can hold the up or down levels then that might be a good time to buy or go short. (To learn more, read Trading On News Releases.)
Two companies that are being affected by the news related events today include: EnCana (NYSE:ECA, TSX:ECA) and Cadence Design Systems (Nasdaq:CDNS)
EnCana Delays Spinoffs
EnCana announced that it will be delaying its spinoff into two energy companies. One will be an oil company under the name Cenovus Energy Inc. and the second will be a natural gas company keeping the Encana name. Randy Eresman, president and CEO said, "We remain committed to creating Cenovus and we are continuing to work on reorganizing our company's structure so that we are ready to move forward with the transaction at the appropriate time." Eresman said the underlying reasons for the creation of Cenovus are still valid, but due to the uncertanties in the global economy, specifically the debt and equity markets, Encana would not proceed at this time.
What all this means is that the company wants to complete the spinoffs when the market conditions are most favorable. This is not something that should be read into negatively. When you do a spinoff or an IPO it must be done during favorable market conditions otherwise the spinoff could fail to live up to expectations. This would create less shareholder value. Shares of Encana were down $3.27 trading at $40.23 within the first hour of trading. (For related reading, try Can Good News Be A Signal To Sell?)
Cadence Design Backs Third Quarter Estimates
In an unusual move the board of Cadence Design will be replacing its President and CEO Michael Fister. While Fister said he will be "resigning" this has all the marks of a "you can resign or we will fire you" scenario. The board has formed an interim office of the CEO that will include: Interm Vice Chairman Lip-Bu Tan, Chair of the Board John Shoven, and Senior vice president and Chief Financial Officer Kevin Palatnik.
The company is also on track for a third quarter loss of 9-11 cents per share versus the First Call consensus of a loss of 11 cents. Revenue estimates from the company were $235-245 million compared with the First Call estimate of $236.3 million. What all this tells investors is that the company is still on track with previous estimates and that the drama behind the scenes is exactly that and nothing more. Shares of Cadence were trading down 39 cents at $4.91 within the first hour of trading.
It's clear that pre-market news can have an effect on the stock. To be profitable using this type of trading it is imperative to watch the first hours trading to determine if it a good time to get involved. Generally, if the stock can not hold those opening gains or losses it may be wise to sit on the sidelines until we see something that is with in the criteria that we are looking for.
From pre-market to after hours, see what you need to do to capture gains quickly in The Daily Routine Of A Swing Trader.