Stay in Step with the Market: Earnings


Earnings season is here.

First things first: Know  when the stocks you own are set to report earnings. Waking up to your stock gapping down 10%, or more, and not knowing why could be a frustrating experience. In MarketSmith, the EPS due date appears at the bottom right corner of the daily chart. If there is an “e” next to the date, it is a due date estimate. Once the company confirms the earnings release, our database will update the date accordingly.

As that earnings date approaches, there are a few factors that will help you decide whether to add to, lighten, or hold your position.

1) How much you are up on the position? If you have a good profit cushion you might be more willing to risk the possibility of the stock gapping down.

2) What stage is the stock’s most recent base? This issue came up in conversation during this week’s webinar, “Stay in Step with the Market". The higher the base stage number,  the lower the probability that a  breakout will work, especially during the volatility of earnings season.

3) Observe how other stocks are responding to earnings, especially other companies in the same industry group and sector as your stock. For example, if a stock in the same industry group has a good announcement, but the market doesn’t respond by pushing up the price, you can add that factor into your decision-making.

Remember that you don’t have to be all-in or out. It is perfectly fine to lighten up shares before a company reports earnings. A lighter position decreases your risk if the stock takes a hit, or it allows you to maintain shares at a lower average cost, if the stock price soars.

If you have any questions about this blog, or a general question about earnings, please contact us directly at (800)424-9033.

Best Returns,

The MarketSmith Team