Monday, April 13, 2009

Earnings Season

Companies report their earnings on a quarterly basis.  Earnings season is a great time to trade.  The earnings reports create tradeable events for stocks across the board.  That being said, it is important to approach earnings season in a systematic manner.  Traders who prepare for earnings season will have a distinct advantage as they will see trends and put themselves in position to react quickly.  As short term traders, we are not concerned with predicting whether or not a company will beat the consensus EPS estimates.  We want to pay attention to see patterns in the reports.  If IBM reports a great number, we can surmise that its competitiors will follow suit.  Also, we will want to see how IBM reacts to its earnings announcement.  It is important to have an idea how the street is positioned in the stock going into the announcement.  If traders know that business has been good for IBM, then most likely the street will be long going into the print.  If the report is better than expected and the stock does not go up, then it is fair to say that the report is priced into the stock.  Many times a great trade setup will come from when the stock does not react as we think it might based on news.  Other stocks in the same sector  will often trade in a simiilar manner as it gets closer to reporting its earnings.  Because of this, it is important to know when stocks will report their earnings.  Earnings calendars are available via  Communication during earnings season is also very important because it is difficult to follow all of the reports.  If we prepare, communicate, and review the reports at the end of the day we will put ourselves in position to profit from earnings season. 

Larry Fisher