Posted on Monday, 23rd November 2009 by Cheyne
For the past month or so, I have been trading nothing but stocks with earnings due in the next week or so, buying nothing but stocks which are in line with the following criteria:
- trending up
- have been rising well since mid March
- have good growth potential based on industry and past highs
- Positive earnings expected, in any range
- Not a pennystock
- Traded on NYSE or NASDAQ
I have been buying these about a week prior to earnings and holding through the report.
Most have been beating the street, it almost seems that Wall Street is now underestimating EPS constantly. I have found that most of the time, if the earnings are after the close, the stock moves relatively quickly in after hours trading, than doubles early the next day.
eg. Stock is at 15, earnings are good, moves up 4% in after hours trading until 8pm, than by the open the stock is 8% up on the previous close. The inverse tends to go for the poor earnings reports.
So, my strategy of late has been to scour the upcoming weeks schedule, shortlist some than slowly remove less than perfect candidates for good earnings. From there I look for a good entry price, buy, set a relatively wide stop loss (I am swing trading after all) and keep an eye on news and price over the coming days. On the day of the earnings, I make a decision whether I am still confident on earnings, if I am not, I sell, otherwise hold and wait. I generally keep the stock until the next day – My broker doesn’t allow after hours trading anyway, the only time I would use that would be to sell my position, in which case if this was occurring often I would need to revise my strategy rather than my broker.
I particularly like to see emerging market or emerging industry stocks, as even slightly beating Wall Street’s estimates tends to see these stocks gain very explosive momentum. A good example here is SINA, a Chinese Internet media company, where better than expected earnings plus an emerging market and industry has pushed the price up a lot on the day after earnings trading, when I sold, and following that the price bounced back to earnings reality to where they should have been priced based on the reports.
SINA (NASDAQ)
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