1/07/2007

Earnings and Dan Zanger

Dan Zanger generated a 164000% return, turning $11000 into $18 million in 18 months. Everyone has heard of Zanger's extraordinary run. Most traders believe that it has lot to do with chart patterns. Chart pattern myth is also perpetuated by him in his many interviews. Chart pattern is one element of his system. There is another element which he often talks about but which many times traders miss and yes you guessed it right, it is earnings.

In fact if you study very carefully the history of his trading and calls, which is their on his subscription website, you would instantly recognise the role of earnings and earnings announcements in timing of his entry. In the initial years, it would be all about low float stocks which has announced 100% plus kind of earnings. He would enter based on earnings plus chart patterns. Those stocks make those blowout moves because of earnings and low float.Now with bigger account he has started focusing on large caps with earnings. Chart pattern is part of the story but the basic fundamental reason for those moves is very important.The 400 stocks he monitors stock patterns on and trade are all with extremely high earning growth or momentum. Many times he times his entries with earnings announcements.

Here are couple of his quotes or extracts from his interviews and articles which highlight the role of earnings in his method:

Dan Zanger on earnings:
As another barometer, I identify powerful percentage changes in earnings and revenue to spot emerging winners. Typically, most of my stock have earnings and revenues up 100% or greater, with a small number of shares that float. These characteristics cause stocks to have large changes in price in shorter periods of time as the Street reacts to announcements about the company.
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

Dan Zanger on earnings:
Over the last fifteen years, I've spent over 10,000 hours studying every type of chart pattern formation imaginable. From Cup and Handle patterns to Falling Wedges, Ascending Triangles, Bull and Bear Flags and too many others to list here now. And lucky for us these patterns repeat over and over and over again!

I combine these patterns with stocks that have unusually higher rates of growth and low number of shares that float. For the average stock I list, growth rates must be up at least 40% for both earnings and revenues growth for their most recent quarters and most stocks that I list have growth rates up 80, 90, 100 and sometimes up 200% and more. It's these high growth rates combined with stocks that have low number of shares that float that make them so explosive.

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$


Dan Zanger on earnings:
To be a real winner a stock needs earnings power – and plenty of it. Look for companies with earnings up more than 70 percent in the most recent quarter. Also, look for earnings results to have accelerated during the past two to three quarters. This means that earnings are still ramping up on a percentage basis. Most of the big movers have earnings up 150 to 400 percent quarter over quarter. For example, Taser Inc. (TASR) made a more than 5,000-percent move in 2003 and 2004 while earnings and revenue growth exceeded 200 percent or more every quarter for about six quarters. Another big mover that started in April 2003 and had similar earnings growth was Research in Motion (RIMM).


So if you want Dan Zanger kind blowout return just follow the earnings.If you have to learn something learn from someone who has made 164000% and over 100% last year (2005 returns 180%)and up 400% plus since 2004 according to November 2006 interview. Following someone who makes 10% in a year will at best make you 5% in a year, better buy Index fund and retire from trading.

Related posts in this series:
Earning Surprise System for $1495
Trading Earnings Breakouts
Earnings Acceleration- Long Term Impact
Trading Earnings Breakout -Part1
Trading Earnings Breakouts -Part2
Trading Earnings Breakouts -Part3

9 comments:

F. said...

Pradeep,

This is very good stuff. I may have to open a longer term account and trade like this to smooth out the equity curve. Keep up the great work.

Pradeep Bonde said...

Some people like to catch big fish, some like to catch small fish. I like big fish fishing.

beam said...

Why low float is a factor to select big win candidate here? Is that because it is easy to be driven up. But big investors may also stay away from an issue without liquidity.

Pradeep Bonde said...

That is your assumption. Nothing gets Wall Street big investors excited like triple digit earnings growth. That is the reason stocks with low float and excellent earnings dominate every years top % movers.

beam said...

What is your low float criteria? floating share < X million or floating share < X% of total share?

Pradeep Bonde said...

floating share < X million

Tom said...

What size float range do you consider ideal? Can a float be too low? What about % of insider/institutional ownership, does that matter?

Pradeep Bonde said...

I like below 25 million float. But float alone does not effect my decision. If a stock has high earnings growth, I will buy it irrespective of float. But all things being equal low float stock with high earnings growth are the ones which make dramatic moves.

Rocko said...

Very interesting article.