Small cap earnings will be in focus next

Next week onwards the earnings focus will slowly shift to small caps. This is where you will find lot of opportunities. The small caps are poorly covered by analyst, many of them have no analyst earning estimate, many do not offer guidance or pre announcement. Many of them are novice in the great Wall Street earnings game, so they are yet to learn earning manipulation. This creates for an interesting trading situation.

Over reactions to earnings are very common in the small cap world. Every earning season a handful of companies from this group will have blowout earnings and then they are discovered by the market. If they have low float then the mixture of blowout earning and low float acts to propel them several percent higher in few months. Many of today's well known stocks like NTRI, HANS, GROW, IAAC, etc were in similar situation few years back.

Some of these are just one earning season wonders, some have the staying power like HANS, NTRI, GROW etc as they continue to show good earnings for next 6-8 quarters and end up making several hundred percent moves. Season of opportunity for earning traders starts next week.


Unknown said...

Here is one reason why it's too risky holding a long position into an earnings announcement on small cap, low float companies:
INPH - high today $13.73
Trading AH for $8.65

Glad I was stopped out of this one several days ago.

Pradeep Bonde said...

It works both ways. 67 days ago it had very good earnings. It has very low float. So from 6.50 it went to 14 in less than sixty days.

There were enough signs of trouble before it plunged today. Extreme momentum leads to reversal.