Oct
6

Earnings Season Is Here

Earnings season is often a great time to trade because it provides a catalyst for many stocks to be temporarily mispriced. Some stocks go through the roof and get way overbought on the euphoria of an earnings report. Sometimes it is even coupled with upgrades on the same day or within the days after the earnings report. Other stocks disappoint and sell off to ridiculous levels. Just like you get the upgrades after a good report, sometimes we are blessed with a sell off and a slew of downgrades pounding the stock into oblivion.

For example, today I was only able to find one stock which I considered to be “mispriced.” St. Jude sold off on bad earnings guidance and hit very oversold conditions with an RSI reading off 22. The oversold reading was coupled with support in the $32 area (the low today was $32.50).

There are many days that go by where I don’t see any of these mispricing opportunities. I often have to wait until the market is generally very overbought (think early August and the middle of September) or very oversold (think March) to find a bunch of opportunities. The only other time I often see these opportunities is during earnings season.

So with earnings season coming I expect to see a lot more quick day trade and 1-3 day swing trade opportunities. I’m excited and ready for action. For me, trying to pick the direction of the overall market takes a back seat right now since I expect to get many great opportunities both on the long and short side without having to even worry about figuring out the general market direction.

Notable companies reporting earnings tomorrow (from Yahoo finance):

AA: After Market Close  [AA always disappoints. If it has good earnings, it may mean really good earnings from other basic material companies]

COST: Conference call is 11 am eastern

MON: Before Market Open
RT: After Market Close

Notable companies reporting earnings on Thursday (from Yahoo finance):
MAR: Before Market Open
PEP: Conference call is 8 am eastern

In terms of the big picture (which I am frankly less interested in with earnings season here), the bearish wedge scenario is certainly still in play. The market interacted with resistance today but did not breach it. But, I did not short SPY. Why??
As I mentioned the past couple of days, I’m not liking the potential fake breakout and pipe top on TLT. If TLT goes lower, the market is likely heading higher.

I’ve mentioned numerous times that I don’t think it is safe to short until the trend of the dollar declining is broken.

Today trades:

- Added STJ long
- Stopped out of XOM
- Stopped out of LCRD
- Added GLD
- Shorted GILD

More on this topic (What's this?)
The Secret to Profiting from Earnings Reports: Buy High… Sell Higher (Investment U, 10/21/09)
Manipulating earnings (Canadian Business Blog, 2/24/10)
THE EXPECTATION RATIO HITS A TWO YEAR HIGH (THE PRAGMATIC CAPITALIST, 10/20/09)
EARNINGS ESTIMATES ARE A MAJOR MARKET HURDLE (THE PRAGMATIC CAPITALIST, 3/3/10)
Read more on Net Income at Wikinvest
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