Trading Trump's Tweets

President-elect Donald Trump has become something of a market mover in December. First with his tweet early in the month about canceling Boeing Co BA Air Force One contract, which caused price in the company drop over $2 during trading. Last Friday, Lockheed Martin Corporation LMT felt the impact of Trump's tweeting when the stock dipped over $5 following Trump's tweet about the cost of the company's fighter jets.

On Friday's episode of PreMarket Prep, the hosts discussed the impact of the president-elect's tweets on the market, along with the way traders could be approaching these sudden moves.

Decrypting

Co-host and proprietary trader Dennis Dick's first thought on the market reaction was that there may already be algorithms trading off Trump's twitter feed. "I almost think that there’s people that were already writing Trump tweet algorithms. The reason I say that is because it happens so fast, they’re hitting that thing within split seconds."

Dick elaborated that it would be quite a feat for a program to parse out the meaning behind what Trump is tweeting. "It’s impressive if you are able to make something like that to actually read the text. He’s not throwing out a ticker, he’s not saying anything blatant. It always takes some interpretation."

Counter-Trading Trump

However, the Trump tweets may not be quite the trend setters they seem at first blush. Despite the initial hit following the president-elect's Air Force One missive, Boeing bounced back close to its previous price that same day and has traded up since then.

Dick posited that the same may be true of Lockheed Martin. In that case, one strategy could be to trade against Trump. "The contrarian trade would be to buy LM and short Boeing," he elaborated.

Overall, Dick didn't recommend betting the house on Trump's twitter feed, saying the price dips could just be, "short little moves that don’t have anything to do with company fundamentals."

Listen to the full discussion in the clip below.