How to trade earnings Part 2

March 31, 2007

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A variation of the earnings trade is also an useful addition to your trading arsenal. There are a handful of companies which have at any given time very high sales growth. They may or may not have earnings. This happens in biotech, pharma and high technology field. In these kind of companies the sales acceleration acts as a catalyst, kicking off multi month rallies post earnings.

So in addition to 100% plus earnings , I track companies which had a 100% plus sales/revenue growth and recent quarter sales/revenue are above 10 million. Now some of these might have good earnings growth, but the hyper sales growth alone acts as a catalyst in such cases. Now if these companies had no rally prior to the earnings season and show sudden revenue acceleration, you will notice they immediately jump. Again the rallies in such companies last for few quarters or years.

The biggest winners in a year typically come from such hyper growth companies.


Related posts :
How to trade earnings
Earnings Season- Time to be very careful...
Earnings and Dan Zanger
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
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How to trade earnings

March 30, 2007

Labels: ,

The earning season is fast approaching. Earning season offers some of the best opportunities for profitable trading. PEAD or post earnings announcement drift is a well studied and proven market anomaly. Stocks which have significant earnings surprise or acceleration, breakout post earnings and rally for next 3-6 months as market reacts to this new earnings power. Sometimes these rallies last years.

So if you are looking for a profitable strategy to trade, you might be interested in putting together a working plan for next earning season.

  • Earnings Data Sources: You need a reliable source for earnings. I use the Investors Business Daily and Wall Street Journal for this. Besides these two there are many other sources of earnings. When choosing a source I look at how they adjust earnings for one time events. Overall IBD does a better job on this.
  • Three types of earnings announcements: Earnings announcements are made after close, before close and in some rare set of companies during market hours. I concentrate on the earnings announced after market close. They appear in the IBD daily edition under 'Company Earnings Report' section.
  • What to look for in earnings: To narrow the set of companies to track and trade for this strategy, based on my prior experience, I only track companies whose earnings are up 100% or more quarter over quarter and the earnings should be at least 5 cents. Sales/revenue should be up 5% or more. Doubling of earnings is significant. Few companies meet that criteria. So I put all the stock meeting this criteria in a list. Now what one is looking for is earnings acceleration. IBD will have those stocks with up arrow to indicate earnings acceleration. Besides that I look for price action on that stock by looking at how much they are up in last 65 days or so. I am looking for stocks which have not rallied in anticipation of earnings. Even better is stock which has no analyst coverage and is neglected. Stocks with less than 100% plus earnings also breakout, but to prioritize, I only focus on above 100.
  • Breakout: An earnings surprise on stock which has not rallied significantly will lead to breakout next day. Most of the time I will enter in the morning and add to position later if the volume climbs above average volume. Many times such stocks will gap up 5 to 300% on day of earnings and still make further moves of 20 to several hundred percent in next 3 to 12 months. I look to capture such moves. Most of these breakouts will have minor pullback at best and just go up for 2 to 6 weeks before having a reaction. So if you don't enter on the earnings day you will be just a observer.
  • Stops: I put stops 1 dollar below the gap low if it is gap up or at 2 days low and trail with stop. In these trades I move my stops quickly once it makes 20% move. Objective in such method is to capture several 20% moves.
  • Watchlist: I maintain a watch list of stocks which respond with a high breakout on earnings day of 4% plus for next one year. These stocks often have several more breakouts during the year and make multi month or multi year moves. All major movers like NTRI, HANS, TIE, AAPL, ICE, GROW and several others had series of 100% plus earnings growth during their entire rally period. The oil stocks which had a stellar rallies for last couple of years or the steel stocks also had several triple digit earnings.
  • How many opportunities: Even in bear markets you will find opportunities using this strategy. If you set up your system properly, you should find 20-25 opportunities like this in every earnings season. When market expectations are low, or market has had several months of correction, you will find 50 to 100 opportunities in an earning season.
So if you are looking for making gang buster returns in this coming earning season, just get your databases and information sources in place and you will find several opportunities. This is one trade which is easiest to trade as there is clear identifiable catalyst. Plus in a year there are 4 earnings season.

Season of profitable opportunities starts next week. You will be pleasantly surprised by the results you get. Carpe diem.



Related posts :
How to trade earnings Part2
How to trade earnings Part3
Earnings and Bulkowski
Improving odds in earnings breakout

Related posts from last earnings season:
Earnings Season- Time to be very careful...
Earnings and Dan Zanger
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


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POPULAR POSTS

    23 comments :

    Shorts battle a tricky market

    It is currently a difficult environment to trade in. The best long entries were couple of weeks ago when the market looked most vulnerable and the bears were dancing on the street. That was an ideal panic buy set up for quick profit. Now putting on long is tricky.

    Even more tricky thing is shorts. Yesterday provided a good lesson in why you need to be very patient to put your shorts. The last two days action had shorts excited. The hypothesis is that this move is fated for failure. That is my hypothesis also, but timing is the issue. So overeager Index shorts were a very good fodder for the last 45 minutes rally. Part of the rally was quarter end effect and large part of it was again panicky shorts getting squeezed. The game always remains the same on the street.

    Market Monitor
    Total 4% plus bullish breakouts=99
    Total 4% plus bearish breakouts=54
    65 day bullish/bearish ratio= 727/319
    Stocks up 50% or more in a month=7
    Stocks up 25% or more in a month=53
    Number of stocks with 100% plus move =320
    Number of stocks up 200% or more = 64
    4% plus signals for 100plus universe=8
    4% plus signals for 200plus universe=3


    Select stocks which had Episodic Pivot moves today. Unusual price and volume move often kick start a long duration rallies. Identifying the catalyst behind such one day move can help determine the likelihood of the move continuing. Short term momentum often translates in to long term momentum.

    Episodic Pivots
    GOL,Gollinhas Aereas Inteligentes (Google  Yahoo  Earnings  Chart) 
    IPS,Ipsco Inc (Google  Yahoo  Earnings  Chart) 
    PBR,Petroleo Brasileiro S.A. Petrobras ADS (Google  Yahoo  Earnings  Chart) 
    PBR.A,Petroleo Brasileiro S.A. Petrobras ADS Class A (Google  Yahoo  Earnings  Chart) 
    PKX,Posco (Google  Yahoo  Earnings  Chart) 


    Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000. To understand how to trade this see the post "How to find a stock which makes a 1500% plus move in a year".



    Force Protection Inc, is a Iraq war play and stock is up 886% from 260 days low. I have had two very profitable trades in this stock in last 6 month and now in to third trade on this one. SPAR, Spartan Motors is a related company in this category and is up 238% from 260 days low.

    BPA,Biosante Pharmaceuticals (Google  Yahoo  Earnings  Chart) 
    CCC,Calgon Carbon Corp (Google  Yahoo  Earnings  Chart) 
    FRPT,Force Protection Inc (Google  Yahoo  Earnings  Chart) 
    GMO,Idaho General Mines Inc (Google  Yahoo  Earnings  Chart) 
    HMB,Homebanc Corp (Google  Yahoo  Earnings  Chart) 
    TGX,Theragenics Corp (Google  Yahoo  Earnings  Chart) 
    TSL,Trina Solar Ltd. (Google  Yahoo  Earnings  Chart) 
    WBD,Wimm Bill Dann Foods Ojsc (Google  Yahoo  Earnings  Chart) 
    3 comments :

    Strange volume spikes.......

    March 29, 2007

    In next couple of days you will see strange volume and price spikes related to Index changes.

    Standard & Poor's Announces Changes to U.S. Indices

    NEW YORK, March 27 /PRNewswire-FirstCall/ -- Standard & Poor's will
    make the following changes to the S&P 500, S&P MidCap 400, S&P SmallCap
    600, and S&P REIT Composite indices:
    -- S&P MidCap 400 constituent Abercrombie & Fitch Co. (NYSE: ANF) will
    replace Univision Communications Inc. (NYSE: UVN) in the S&P 500, S&P
    SmallCap 600 constituent Phillips-Van Heusen Corp. (NYSE: PVH) will
    replace Abercrombie & Fitch in the S&P MidCap 400, and Blackbaud Inc.
    (Nasdaq: BLKB) will replace Phillips-Van Heusen in the S&P SmallCap
    600 after the close of trading on Wednesday, March 28. Univision is
    being acquired by an investor group including Madison Dearborn
    Partners, Providence Equity Partners, Texas Pacific Group, Thomas H.
    Lee Partners and Saban Capital Group in a deal expected to close on or
    about that date, pending final approvals.

    -- S&P SmallCap 600 constituent NVR Inc. (Amex: NVR) will replace New
    Plan Excel Realty Trust Inc. (NYSE: NXL) in the S&P MidCap 400, Arris
    Group Inc. (Nasdaq: ARRS) will replace NVR Inc. in the S&P SmallCap
    600, and One Liberty Properties Inc. (NYSE: OLP) will replace New Plan
    Excel Realty Trust in the S&P REIT Composite after the close of
    trading on Wednesday, April 4. New Plan Excel Realty Trust is being
    acquired by S&P Global 1200 constituent Centro Properties Group in a
    deal expected to close on or about that date, pending final approvals.

    -- Spartan Stores Inc. (Nasdaq: SPTN) will replace Carreker Corp.
    (Nasdaq: CANI) in the S&P SmallCap 600 after the close of trading on
    Friday, March 30. Carreker is being acquired by S&P MidCap 400
    constituent Checkfree Corp. (Nasdaq: CKFR) in a deal expected to close
    on or about that date, pending final approvals.

    -- Education Realty Trust Inc. (NYSE: EDR) will replace The Mills Corp.
    (NYSE: MLS) in the S&P REIT Composite after the close of trading on
    Wednesday, March 28. Mills is being acquired by S&P 500 and S&P REIT
    Composite constituent Simon Property Group Inc. (NYSE: SPG) in a deal
    expected to close on or about that date, pending final approvals.
    Standard & Poor's will monitor these transactions, and post any
    relevant updates on its website: http://www.standardandpoors.com.
    Abercrombie & Fitch operates as a specialty retailer in the United
    States. Headquartered in New Albany, OH, the company will be added to the
    S&P 500 GICS (Global Industry Classification Standard) Apparel Retail
    Sub-Industry index.
    Phillips-Van Heusen engages in the design and marketing of various
    apparel products. Headquartered in New York, NY, the company will be added
    to the S&P MidCap 400 GICS Apparel, Accessories & Luxury Goods Sub-Industry
    index.
    Blackbaud provides software and related services for nonprofit
    organizations. Headquartered in Charleston, SC, the company will be added
    to the S&P SmallCap 600 GICS Application Software Sub-Industry index.
    NVR Inc. operates as a homebuilder in the United States. Headquartered
    in Reston, VA, the company will be added to the S&P MidCap 400 GICS
    Homebuilding Sub-Industry index.
    Arris Group operates as a communications technology company.
    Headquartered in Suwanee, GA, the company will be added to the S&P SmallCap
    600 GICS Communications Equipment Sub-Industry index.
    One Liberty Properties is a REIT that engages in the acquisition,
    ownership, and management of commercial real estate properties in the
    United States. Headquartered in Great Neck, NY, the company will be added
    to the S&P REIT Composite Diversified REITs sub-industry.
    Spartan Stores engages in the distribution and retailing of groceries.
    Headquartered in Grand Rapids, MI, the company will be added to the S&P
    SmallCap 600 GICS Food Distributors Sub-Industry index.
    Education Realty Trust is a REIT that engages in the acquisition,
    ownership, leasing, and management of student housing communities near
    university campuses in the United States. Headquartered in Memphis, TN, the
    company will be added to the S&P REIT Composite Residential REITs
    sub-industry.
    Following is a summary of the changes:


    S&P 500 INDEX - March 28, 2007
    COMPANY GICS ECONOMIC GICS SUB-INDUSTRY
    SECTOR
    ADDED Abercrombie & Consumer Apparel Retail
    Fitch Discretionary
    DELETED Univision Consumer Broadcasting & Cable TV
    Discretionary


    S&P MIDCAP 400 INDEX - March 28, 2007
    COMPANY GICS ECONOMIC GICS SUB-INDUSTRY
    SECTOR
    ADDED Phillips-Van Consumer Apparel, Accessories &
    Heusen Discretionary Luxury Goods
    DELETED Abercrombie & Consumer Apparel Retail
    Fitch Discretionary


    S&P MIDCAP 400 INDEX - April 4, 2007
    COMPANY GICS ECONOMIC GICS SUB-INDUSTRY
    SECTOR
    ADDED NVR Inc. Consumer Homebuilding
    Discretionary
    DELETED New Plan Excel Financials Retail REITs
    Realty Trust


    S&P SMALLCAP 600 INDEX - March 28, 2007
    COMPANY GICS ECONOMIC GICS SUB-INDUSTRY
    SECTOR
    ADDED Blackbaud Information Application Software
    Technology
    DELETED Phillips-Van Consumer Apparel, Accessories &
    Heusen Discretionary Luxury Goods


    S&P SMALLCAP 600 INDEX - March 30, 2007
    COMPANY GICS ECONOMIC GICS SUB-INDUSTRY
    SECTOR
    ADDED Spartan Stores Consumer Staples Food Distributors
    DELETED Carreker Information Data Processing &
    Technology Outsourced Services


    S&P SMALLCAP 600 INDEX - April 4, 2007
    COMPANY GICS ECONOMIC GICS SUB-INDUSTRY
    SECTOR
    ADDED Arris Group Information Communications
    Technology Equipment
    DELETED NVR Inc. Consumer Homebuilding
    Discretionary


    S&P REIT COMPOSITE INDEX - March 28, 2007
    COMPANY GICS ECONOMIC GICS SUB-INDUSTRY
    SECTOR
    ADDED Education Financials Residential REITs
    Realty Trust
    DELETED Mills Financials Retail REITs


    S&P REIT COMPOSITE INDEX - April 4, 2007
    COMPANY GICS ECONOMIC SECTOR GICS SUB-INDUSTRY
    ADDED One Liberty Financials Diversified REITs
    Properties
    DELETED New Plan Excel Financials Retail REITs
    Realty Trust
    8 comments :

    Rally runs out of steam

    March 28, 2007

    Labels:
    The counter trend rally from the panicky bottom seems to have run out of steam. The longevity of the rally was always a question mark because it was happening to quickly after the correction. But the few weeks offered lots of opportunities and number of new stocks like BTJ, DXPE, WFR, JSDA, ROCM, ACAD, CPHD, PRGX, etc. had a quick 25 to 50% move within that time period. There still might be another attempt at bounce , driven by month end and quarter end dynamics.

    The next phase of down move is likely to be characterized by steady systematic selling. That kind of steady selling can be enduring. Panics are always of short duration and good opportunities for long.

    Long opportunities will still continue to offer better options. Especially the episodic pivot scans will work, even if we go in to a down move. Only thing is greater selectivity will be required. As bulk of my focus is on Episodic Pivots, I have added that scan information to this post and hence forth will shift attention to it rather than 100% plus moves.

    Market Monitor
    Total 4% plus bullish breakouts=67
    Total 4% plus bearish breakouts=61
    65 day bullish/bearish ratio= 707/328
    Stocks up 50% or more in a month=7
    Stocks up 25% or more in a month=51
    Number of stocks with 100% plus move =322
    Number of stocks up 200% or more = 59
    4% plus signals for 100plus universe=16
    4% plus signals for 200plus universe=5


    Select stocks which had Episodic Pivot moves today. Unusual price and volume move often kick start a long duration rallies. Identifying the catalyst behind such one day move can help determine the likelihood of the move continuing.

    Episodic Pivots

    ACPW,Active Power Inc (Google  Yahoo  Earnings  Chart) 
    ANF,Abercrombie & Fitch Co (Google  Yahoo  Earnings  Chart) 
    BDCO,Blue Dolphin Energy Co (Google  Yahoo  Earnings  Chart) 
    BLKB,Blackbaud Inc (Google  Yahoo  Earnings  Chart) 
    CYCC,Cyclacel Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
    CYTK,Cytokinetics (Google  Yahoo  Earnings  Chart) 
    DIO,Diomed Holdings Inc (Google  Yahoo  Earnings  Chart) 
    DNDN,Dendreon Corporation (Google  Yahoo  Earnings  Chart) 
    DVSA,Diversa Corporation (Google  Yahoo  Earnings  Chart) 
    FUL,H.b. Fuller Co (Google  Yahoo  Earnings  Chart) 
    GHCI,Genesis Healthcare Corp (Google  Yahoo  Earnings  Chart) 
    GRZ,Gold Reserve Inc (Google  Yahoo  Earnings  Chart) 
    HAYZ,Hayes Lemmerz International Inc (Google  Yahoo  Earnings  Chart) 
    HWCC,Houston Wire & Cable Company (Google  Yahoo  Earnings  Chart) 
    IDSA,Industrial Svcs Of Amer (Google  Yahoo  Earnings  Chart) 
    KRY,Crystallex Internat Corp (Google  Yahoo  Earnings  Chart) 
    LMRA,Lumera Corporation (Google  Yahoo  Earnings  Chart) 
    LNDC,Landec Corporation (Google  Yahoo  Earnings  Chart) 
    NCST,NUCRYST Pharmaceuticals Corp (Google  Yahoo  Earnings  Chart) 
    NOIZ,Micronetics Inc (Google  Yahoo  Earnings  Chart) 
    NYMX,Nymox Pharmaceutical Corp (Google  Yahoo  Earnings  Chart) 
    PVH,Phillips-Van Heusen Corp (Google  Yahoo  Earnings  Chart) 
    SYPR,Sypris Solutions Inc (Google  Yahoo  Earnings  Chart) 
    TECUA,Tecumseh Products Cl A (Google  Yahoo  Earnings  Chart) 
    VYYO,Vyyo Incorporated (Google  Yahoo  Earnings  Chart) 


    Select stocks which had 100% plus move in last 260 days from the low and which are up more than 4% on higher volume. Today's minimum volume is above 100000. To understand how to trade this see the post "How to find a stock which makes a 1500% plus move in a year".
    BPA,Biosante Pharmaceuticals (Google  Yahoo  Earnings  Chart) 
    BRLC,Syntax-Brillian Corp (Google  Yahoo  Earnings  Chart) 
    CDY,Cardero Resource Corp (Google  Yahoo  Earnings  Chart) 
    CNST,Constar Internatl (Google  Yahoo  Earnings  Chart) 
    CTCH,Commtouch Software Ltd (Google  Yahoo  Earnings  Chart) 
    CYNO,Cynosure Inc (Google  Yahoo  Earnings  Chart) 
    GMO,Idaho General Mines Inc (Google  Yahoo  Earnings  Chart) 
    GOT,Gottschalks Inc (Google  Yahoo  Earnings  Chart) 
    HAYZ,Hayes Lemmerz International Inc (Google  Yahoo  Earnings  Chart) 
    HOKU,Hoku Scientific Inc (Google  Yahoo  Earnings  Chart) 
    MFW,M&F Worldwide Corp (Google  Yahoo  Earnings  Chart) 
    NTY,Nbty Inc (Google  Yahoo  Earnings  Chart) 
    NXST,Nexstar Broadcasting Group (Google  Yahoo  Earnings  Chart) 
    NYMX,Nymox Pharmaceutical Corp (Google  Yahoo  Earnings  Chart) 
    SPTN,Spartan Stores Inc (Google  Yahoo  Earnings  Chart) 
    VYYO,Vyyo Incorporated (Google  Yahoo  Earnings  Chart) 
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