What does good earning trade look like
While many earnings trade will give a one day or few weeks pop, once in a while you get a stock which will give you a major hit. Such stocks have some characteristics:
1 Neglect. They are neglected for many years, 2 plus years ideal.No analyst coverage. Last major rally was several years ago. Or had no major rally in life of the stock.
2 There is dramatic increase is earnings or sales. It is first or second acceleration.
3 Ideal situation, low float.
Now to give you idea of what does the price action look like, lets have a look at one of the stock which is showing up on the Earnings list today VPHM.
VPHM Daily 2005
VPHM Monthly 2005
Here is what happened to VPHM in 2005 earnings season.
Now VPHM is not an isolated example if you look at stocks like NTRI, HANS, BOOM, TASR, GROW and many others during there frenzied rally stage , you will see the same thing. Or more recently FRPT, which is up several hundred % this year, look at its earnings/sales, earnings season kicked of that rally.
One has to wait, wait, and wait for such gems during earnings season. In the meanwhile there are the 10 to 20% few days pop kind of free money opportunities.
Lot of you who are emailing saying oh but this stock was up triple digit but it tanked, are simply not understanding the concept. A 4 th or 5 th or 6 th or 8 th triple digit earnings after a stock already has a run, it can at times launch a blowout move, but that probability is low. What launches a real long duration rally like VPHM is neglect and major surprise.
1 Neglect. They are neglected for many years, 2 plus years ideal.No analyst coverage. Last major rally was several years ago. Or had no major rally in life of the stock.
2 There is dramatic increase is earnings or sales. It is first or second acceleration.
3 Ideal situation, low float.
Now to give you idea of what does the price action look like, lets have a look at one of the stock which is showing up on the Earnings list today VPHM.
VPHM Daily 2005
VPHM Monthly 2005
Here is what happened to VPHM in 2005 earnings season.
Now VPHM is not an isolated example if you look at stocks like NTRI, HANS, BOOM, TASR, GROW and many others during there frenzied rally stage , you will see the same thing. Or more recently FRPT, which is up several hundred % this year, look at its earnings/sales, earnings season kicked of that rally.
One has to wait, wait, and wait for such gems during earnings season. In the meanwhile there are the 10 to 20% few days pop kind of free money opportunities.
Lot of you who are emailing saying oh but this stock was up triple digit but it tanked, are simply not understanding the concept. A 4 th or 5 th or 6 th or 8 th triple digit earnings after a stock already has a run, it can at times launch a blowout move, but that probability is low. What launches a real long duration rally like VPHM is neglect and major surprise.
Posts
18 comments:
Is VPHM a buy ?
My list for today is :
NVEC
ARII
BBBB
CLRT (not to inclined to take a position in CLRT, it has risen quite a few in last quarter)
Amit
What do you think based on what I said in my post.?????
based on this post and what I have learnt from you over the last few months, I think its a buy... but this one had earnings released yesterday and had some movement already, that makes me think if it is a buy for today or something you keep in your buy list for small dips
I do not see any compelling buy candidate in Earnings list today.
Will you be posting your short list of EPS picks for trade today? I have been up early morning waiting for this list to show up, since normally you post one by 6:45 am. I had my cup of tea, but nothing had shown up. Just wondering!! You have many followers and I am one of them!! Thanks
One thing I noticed in VPHM chart is many EPs in between narrow range bars.....Can this be taken as an indication of neglect?
Best way to define neglect is to look at current price v/s some pivot high like All Time High or 3 year high.
I also use another measure of neglect in my other software to calculate number of 4% plus days in last 2-3 years v/s total trading days during that period.
pradeep - fyi - another lottery winner story:
http://www.jsonline.com/story/index.aspx?id=594236
Walter
I was more interested in the systems used by people to pick numbers. There are people who have built programmers to generate numbers, they buy say every week 69 tickets or something like that and make $75 to $500 on them in some draws.
There are lot of softwares like these. I am researching those things, just for fun to try and understand how do they work. I figured out most of the stuff.
yeah - i remember that - was just passing along...
Dee
Surprise is the most important thing in eliminating candidates. You can eliminate 98% of them easily.
Let us say your girl friend or wife of 5 years has never bought flowers for you, then one day she buys a huge bouquet, is that a surprise?
Now if she does it second time, you will still be surprised. But say after she does it 8 th time, or 9 th time. Or if she was one of those who buys flowers every week, then there is no surprise.
So once you have the list you have to look at
1 Is it first time or second time
2 What was the price action coming in to earnings. Was this stock rallying or going sideways.
3 What is the float. Best earnings rallies happen on low float stocks.
It takes 2 earning season to get it. The idea is not to chase every earnings, but to only look for the genuine surprise ones.
To understand how to eliminate, put all 100% EPS in list, watch them for 3-6 month, you will understand which work and which do not.
Alternatively go through all stocks which have gone up 100% or more in a year. Plot their earnings date. See what % it was. See what was the price action prior to the earnings and start of rally.
Do this over many years ( I did it many years ago on 40 years worth of data).
in your experience, is the declaration of dividend a sustaining catalyst?
e.g. 4/26 RKT earnings; 2/27 dividend declared
vol/breakout
thanks!
Pradeep,
how do you explain that PTEN has decreased it EPS (091->0.73), has decreased its revenues (-8.5%) and its net income (-27.3%) and today is gone up a 6.3%!.
I must say that PTEN is a good company undervaluated that usually follows the price of the gas.
Best
Stocks go up for variety of reason. Stocks go up after bad earnings, because there is set of investors who bet that this is the worst and earnings will mean revert.
Sometime companies ( actually big established companies do this all the times), put in all bad news in one quarter, so that next quarter can appear good. Lot of earnings announcements are market signaling devices for management.
So there are many ways to trade earnings as I said before in "Oh the thinks, you can think"
Buying the big drop after earnings and holding it for one month, is the most profitable strategy in back testing. Go and see the Reuters screen . Contrarian Opportunities screen on Reuters outperforms S&P by 990% and Nasdaq by 1040%.
http://www.investor.reuters.com/ScreenPerformance.aspx?target=%2fopinion%2ffind%2fwperf
Studying earnings in detail can give you many ideas to trade earnings.
Pradeep, yesterday I traded BWLD with success, IBD stock with very strong positive market...today TTWO with very mediocre market and small volume on the stock, with weak results. Is this what you are describing in the post above this? Thank you
Pradeep,
When you mentioned to watch for 1st or 2nd earning acceleration, did you mean quarterly earning as compared to earning for the same quarter last year?
Where do you get earning data from?
And lastly, what is the float cut off that can be considered as low?
Thanks,
Siya
Barbara
This is not a day trading related thing. If you go through the posts in the sidebar under "Methods and philosophy", you will figure out what this is all about.
Siya
1 yes
2 There is earnings link on all stock symbols I post. Try it.
3 No cut off
Congrats on the spreadsheet in the sidebar. I appreciate your additions of the "buys to consider" under the statistics. In studying those I am slowly beginning to put charts together with your past tutorials.
Long ago I duplicated the spikes in TC, but now forgot and cannot locate what each price spike colors represent in the middle & bottom. If I could locate the tutorial title that would help. I know the middle (yellow) is 4% jumps. What do the bottom spikes represent please?
Thanks once again, for your patience and your daily help
Art
Post a Comment