Wednesday, May 8, 2013

The Daily Note - Play Earnings, Play ~ $GMCR

***** Before you see the news or the headline or results, there are many people ahead of you that know it. Wise to remember that fact about all "news" because news is only new to the ears or eyes that see it for the first time.

Depending on what your sources are, of course, most of us have no clue about corporate earnings announcements unless we subscribe to services that keep ear to the ground and even with that we can only wait for the release. Yet there are many who already know the numbers or at least something about the likely announcement, and it's not just your friendly stock analyst, neighbor or whisperer.  We can argue about the ethical issues about this all year round, but the fact is that no one is going to stop it with regulations, or other ways, because far too much money is waiting to be made. Some companies have better controls than others but  it's like trying to stop sand from flowing through your fingers.

 We don't have to be plugged into everything to see what is happening or to make intelligent decisions. The charts are our eyes and ears to the market and news and we have several options how or when to trade earnings.  One is not to be in a trade, in other words, be all cash prior to earnings announcement. That is also the safest way to be. Of course that can mean missing out on a super move after hours, but when weighing the risks it's best because one can  play after hours with less risk. Calculating the  risk we wish to take and taking the rest of  holdings off the table, or balancing with options plays are some other ways we can use to reduce our risk or  we can choose not to hold stocks that are so volatile in earnings season.

Planning and sticking to a plan is very important and we must realize that we don't have to trade at all.  However, upon deciding to trade earnings results, the dilemma is where to find the advantage of earnings announcements because we know that at the moment the news is released, trading can become very confusing.  To avoid such confusion,  we can observe the charts for clues which can mostly be found in the last hour of the trading day, for after hours earnings releases.

Take a look at the 1 minute chart the hour before close for GMCR and you'll note the steady rise of the candles, unlike the rest of the day previous; that is clue number one. The next hint will be the steady rise in volume which means people know something about what is about to happen: The earnings announcement after hours. Observation of such moves can give a good advantage even if we do not fully know the reason. Taking a reasonable risk with such a trade can be rewarding.

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