Big surprise lead to big moves | stockbee


Big surprise lead to big moves

Oh my god this companies earnings is up 800% !!!

Holy shit, this company increased sales from 10 million to 250 million !!!

Let me rub my eyes and check this again. What this company is growing earnings 500% and sales has gone up 800% and no one was tracking this company !!!

Everyday hundreds of stocks release news before and after hours. These news releases can lead to stock making big move for the day. What you have to look for is extreme surprise or growth. Not 10% growth or 30% growth but the extreme growth.

When news is released either it is already discounted by the market or the market is surprised by it. The stocks can either go up or go down.

Announcement related to earnings in either as guidance or actual earnings have potential for starting or ending multi month moves.

This phenomenon is called PEAD or Post Earnings Announcement drift. It is considered a market anomaly.
In a perfectly efficient market a news should get discounted immediately and there would be no way to profit from it.

So let us say a stock releases significantly better earnings. If such earnings is going to lead to doubling of the stock, then at open it should gap up to the double price and there would be no way to profit from the new information.

But markets are not efficient. What happens is the new surprise gets priced in over time. This is what the PEAD phenomenon is about.

When companies announce earnings, if the earnings are significantly better or worse than market/analyst expectations then the company stock goes up or goes down for next couple of months.

If you want to make money using earnings announcement read following posts:

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