Earnings season is my favorite time of the year to trade and thankfully it comes 4 times a year. Since we’re in the middle of it right now I thought I’d write about the approach I take. If you remember from the IM Strategy, a big part of my goal is to capitalize on market corrections. Those corrections come from market volatility and what other time of the year can we mark those days on the calendar for your favorite stocks than earnings season. A season that inexplicably beats up stocks for beating earnings or sends them soaring on misses. Or the complete opposite of that.
Now, I know there are other factors that contribute to these fluctuations, but it doesn’t make sense. The good thing is that I’m not trying to make sense of the market. If I did, I’d blow my account. Nor am I trying to predict which way it’s going. That’s a losing proposition too. What I am trying to do however is to catch a piece of the correction after the big market move is over. I say a piece of the correction because it is impossible to consistently buy at each low and sell at each high. However, there is plenty of profit opportunity in between.
As for this earnings season, most stocks have beat estimates. The interesting thing is that I don’t recall any off hand that have gotten beat up in the process. Conversely, if I use FB as an example, they reported last Wednesday after market and closed at $159.69. On Thursday they opened at $173.22, over an 8% run. Then on Friday it was down slightly. So I’m expecting it to come down some after that run. Even if it doesn’t come back down to the pre-earnings price, I’d be looking to catch part of that drop.
That’s really it. I know that is just scratching the surface, but that is what I wanted to cover right now. There will definitely be more opportunities to dig into some actual scenarios that I trade through as time goes by. But for now, I’ll be watching some of my favorites report this week such as: AAPL, GILD, PFE, MRK, BABA and CELG. We’ll see if the positive earnings announcements and their corresponding runs continue. Either way I’ll be ready, because I’m really enjoying playing both sides of the market.
As for my overall progress, the tuition payment continued this week. Specifically in the amount of $117. So I’m back to about even from where I started and short of a big run tomorrow I’m staring at 2 straight down months. The good thing is that there will be plenty of opportunity to get back in the win column. You have to be optimistic trading, or in any other business, or you’ll lose. The best way I’ve found to be optimistic is to have a short memory. So what happened in the last 2 months? I don’t know because I forgot, but if you would like to answer that question I would welcome you to read my previous posts.