Trading Stocks During Earnings Season

Greetings,

January, 11, 2012

If you have been around the stock market for any amount of time you know that trading stocks during earnings season can be somewhat of a challenge to say the least. With earnings season about to really get underway here now I thought that today would be a great time to share my take on trading around earnings. I will say that there is nothing like owning a stock that reports great earnings that are well received by investors and watch proudly as your stock opens higher the next morning and surges higher, taking your account balance along for the ride while you confidently sit back and say “I knew it” .

However we all know the feeling of owning a stock that reports earnings that are not well received by the street, before you can even say “I blew it” you stare in amazement of just how far and fast your stock & account balance have fallen, and promise to sell the darn shares as soon as they rebound, or worse yet you refuse to admit you were wrong and add more shares at the new heavily discounted price. After years of batteling with this I have found that at best, you have a 50/50 chance of having the stock go your way (a true coin toss) I like my odds a little better than that and have my own method of trading around earnings and would like to share it with you here.

As we have discussed many times before, one of the best ways to trade stocks after their earnings report is to allow the initial market reaction to take place first, often the initial market reaction is the trend the stock will trade in during the next 10 or 12 weeks. Lets take a stock that reports good earnings and opens 5% higher and starts climbing even higher and on heavy volume, it is far better to allow it to run higher to its first resistance and then monitor the pull back, ideally it should be on light volume and then watch for that first support level to show up. Many times a stock will come back to the last high before the breakout and that would make a good entry point, this can all happen within hours, days, or a few weeks.

I went back on our  2011 earnings up page  and found a great example to share with you here.