Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.
On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.
There are several different catalysts to move an issue higher in pre-market or after-hours trading. The obvious ones are earning reports, positive rating changes or changes in the c-suite. One that's not that common but will happen several times a year is when an issue is going to be added to a major index.
That's exactly why Grocery Outlet Holding Corp (NASDAQ:GO) shares are trading higher in Tuesday's session, making it the PreMarket Prep Stock Of The Day.
The Company: Considering the Amazon'ing of the world with respect to retail, it's somewhat surprising this company IPO'ed last June. Taking into account the recent change in consumer behavior due to the COVID-19 crisis, it's not that surprising it's being added to the S&P 500 Midcap Index.
Grocery Outlet Holding Corp is a grocery store operator. Its flexible buying model allows them to offer quality, name brand products at prices generally 40% to 70% below those of conventional retailers.
The Catalyst: In order to better reflect the segments of our changing economy in the major indexes, companies will be added and deleted on a periodic basis.
After the close on Monday, it was announced Grocery Outlet Holding will join the S&P Midcap 400 prior to the opening of trading on June 25.
In order for managed funds that aim to mimic the performance of the index and minimize any tracking errors, they will be forced to purchase shares of the issue and sell the one that is being deleted.
Algorithms Recognize And Front Run The Issue: As news of the issue being added to index hits the tape, news algorithms will aggressively purchase shares of the issue. This is done in anticipation of the slower-reacting funds that will need to purchase larger quantities of shares than what's available in the after-hours session.
After-Hours Price Action: Just as the announcement was made at around 5:15 p.m. EST, the issue rallied over $3 in a few minutes, moving up from Monday's close ($35.44) to $38.47.
PreMarket Prep Analysis: While the issue was being discussed on the show, it was trading in mid-$38 handle. The author of this article cited a "stubborn little seller at $38.50 area." As so common with issues that rally on this type, the point increase initially gets a bit overdone as indexers tend to be more discriminate in their buying over the next few days.
After a higher open ($37.80) but below where it was trading in the premarket, it had a brief retreat to $37.40 and then breached the pre-market high ($38.51) at $38.63 at time of publication.
The full discussion of the issue on today's show can be found here: