Some weeks back I saw this advertisement on Zacks, selling a earning surprise based system for $1495. This is supposed to be their "the new new thing". Latest hot discovery from so called experts on earnings for years.
Dear Zacks Customer:
I can’t believe we didn’t think of this sooner.
Hidden away in Zacks was a secret that provided a clear way to make quick, profitable trades. The logic behind it is simple. The results are amazing. And now it’s being revealed to Zacks’ customers for the first time.
Zacks Surprise Trader.
What’s the secret behind it? Our exclusive Price Response Indicator (PRI).
This amazingly insightful indicator was hidden away in a product designed for professional investors. It is amazingly accurate at saying which stocks will rise in the weeks following an earnings announcement and which won’t.
Then we got to thinking. If you coupled the PRI with the Zacks Rank and some of our other proprietary research, you’d get a ridiculously powerful trading system. One that identifies only a handful or two of stocks, nearly unbeatable and almost a sure-thing to beat the market.
Remember the Zacks Rank boasts a 31.8% average return for the past 18 years, uncannily accurate in predicting which stocks will beat the market in next 30 to 90 days.
But with the PRI, you can go one step better. Sure stock prices rise after a positive earnings announcement surprise. But, there’s a problem. You see, nearly all of these stocks OPEN higher, before you can ever get your order in. And the profit is gone.
The key is to know which stocks will continue to rise in the weeks following the announcement. Our analysts have identified the rare 2% of stocks with a “high probability for extended price appreciation.” For the rest of us, that means that stock price will likely go up for a few weeks after the earnings surprise. That’s plenty of time to get in and ride the trend. Proving the truism "Buy high; Sell higher."
Actually, these elite 2% of stocks identified by the PRI have generated an annual average return of 56.6% from 6/29/01 to 2/28/06.
Why is the PRI so powerful?
Our proprietary system looks for stocks that were declining into their earnings announcement, but ended up having a big positive surprise. That means the market was leaning the wrong direction on the stock. So when it turns out to be a positive surprise, it takes investors a couple of weeks to correct their mistake. And that is why we are able to come in after the surprise and make profit for our subscribers.
Now obviously the good marketers at Zacks want you to think, they discovered it just now. But earnings surprise based systems are known and used by many traders for many years. If you study mutual funds, many of them follow the strategy. In fact every year the institutional money managers survey shows the number one factor to time buy or sell for money managers is earning surprise. Why do you think those stocks act the way they do, it is not Grandmas in New Jersey buying them or selling them in boat loads on earnings announcement days.
I have studied some of the best research bought by institutional players ( typically costing $20000 plus per year), retail traders have no access to most of it.These research shops have qants who have studied every single factor that affects stock price. The best performing research shops research has two common elements, yes you guessed it right, earning surprise and price momentum. Obviously each one has a unique twist on it, the sauce is slightly different but the base ingredients are same.
Over the years I have seen and studied dozens of systems based on earnings. Some use analyst earning forecast, some use price moves in few weeks prior to earnings announcements, some mine for analyst for best track record of getting it right, some use options based strategies, some buy few days after earnings, some use quantitative factors to weed out candidates to buy, but the basic concept remains same. Earnings announcements precipitate moves which can last for months and you can exploit it. Obviously I have several insights in to how it works and how to make it work, but I am not selling them for $1495....
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