Monday, January 16, 2012
The Daily Note - Trading in Earnings Weeks
This week will start the most watched stocks earnings season. Leaders like $GOOG, $IBM, $ISRG, $MSFT followed next week by $AAPL, $NFLX among many others, and in addition the financials like $AXP, $BAC $COF, reporting. Much focus will be placed on actual tone of the past quarter in my opinion because there was a sense of acceleration therefore expectations rose for more product output and better earnings. The outlook for next quarter too will have an extra emphasis due to recent economic developments overseas, especially in the financial areas. So what is a trader to do or anticipate? Well, if you're in the moment, nothing.
All we have to do is look at the moment of the results, notice the accelerated movement and react to the outcome. But that would almost be too easy, and since most traders fail at earnings plays, there is something more to be considered.
One is that many traders jump the gun on rumors and just plain jitters, and tend to create huge swings one way then another at the moment or even before the actual announcement of facts.
The other issue is that much of the reporting is "headline" which in itself is just another word for hype, which too can add to the volatility.
Third considerations is that most people interpret earnings on the numbers good/bad then the second whammy hits, which is the outlook good/bad. They can agree, disagree or negate each other out. Each one has a different result in the stock movement.
The above factors are what drive traders to or away from the actual trade at earnings announcement. Yet if you study the reactions to those 3 factors mentioned and anticipate the high low swings, earnings plays can be most rewarding. They are not easy nor are they to be done off the cuff. It is as much a study as any other strategy.
Not all stocks play well at earnings, even among the leaders. So the last consideration of course is interest. Likes of GOOG, AAPL, BIDU and in its heyday, RIMM one could always anticipate a good move. So knowing the stock you are planning to trade is most important. The more intimately you are involved with a certain stock amongst the likely movers, the better for your plan.
Finally, study the reaction before during and after announcement, and be sure to learn to quickly read the report as it is displayed and do not rely on the news media to tell you how good or bad it is because by that time, you're too late, but always trust yourself.
Happy Trading, Living and Dancing
The Daily Pick - CREE
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Posted by Anni_V