Keep an eye on earnings winner | stockbee

3/07/2012

Keep an eye on earnings winner

Corrections are part of the bull market game. Some corrections are brief and shallow. Some are deep and shake you out of long term position and some can turn in to full blown bear markets.

At this stage the market is down 2% or less from the high. But if you see and read what people are saying, it is as if it is the end of the world and time to stock up on emergency supplies and hit the bomb shelter.

A correction was due for sometime as we had a big move without any meaningful pullback. Now we will see how it progresses from here onward.

It is time to look at stocks that hold up well during the correction. There are many stocks that had big earnings surprise in last earnings season and had Episodic Pivots. Most of them are now pulling back. Keep an eye on them. They will likely rally in to next earnings season.

In earnings there is a cockroach effect. If you find one roach, you are sure to find more roaches. Same way one earning surprise tends to lead to more earnings surprises and same way one earnings miss tends to lead to more misses.

The Bluefin tool developed by http://patientfisherman.blogspot.com/ is a very good tool to find stocks with big earnings surprise. He maintains a database of stocks that reacted positively to earnings surprise:


Many of these stocks go up immediately after earnings and then pullback or go sideways. Few weeks before next earnings season they rally again. In many of the cases the earnings is a major game changer and in those stocks the rally can last for couple of quarters. 

Another way to play the earnings pop is by using the Zacks ranking. The Zacks rank factors in rising earnings estimates by analyst. If analyst earnings estimates are rising then the stocks get ranked no 1. Such stocks tend to have earnings surprises. Many rally in to earnings based on analyst trends.

Ideal scenario in an earnings play is earnings acceleration, earnings surprise, sales acceleration and higher earnings and sales guidance. Stocks meeting all the above conditions can have explosive moves in bull markets.  


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