During earnings season, we face the day knowing that the chances of a leading stock gapping up or gapping down is higher.  But that’s not all we face. The Street may not always reward a strong earnings result, and when that happens to leading stocks, it’s important to pay close attention.  It could be a warning that market conditions are more negative than we thought.

When Netsuite(N) plunged on earnings on 1/30/2015, after failing to break out of a 43-week cup-with-handle pattern, it left many investors scratching their heads. Although Netsuite met its consensus EPS forecasted numbers, and earnings have been steadily increasing for three straight quarters, the stock is currently 20% off its high and 13% down from its pivot price of $110.98.

What we can learn from this is that the numbers do not always matter. The market’s reaction to the numbers is everything. The fact that we see more stocks gapping down than stocks gapping up is a sign to approach the market with extreme caution.

But that doesn’t mean you can’t protect yourself. Here are some key   things to do to protect your profits during earnings season:

·Know the day and time your stocks are reporting

·Know your average cost per share in advance of the announcement (it’s obviously best to have a profit).

·Decide whether you have enough cushion to weather a gap down—and whether you want to take that risk.


To learn more, you can view our webinar “Stay in Step with the Market.”  We will also have a new webinar on earnings volatility coming up next Tuesday, February 10th, 2015. You can register for it here.

As always, if you have any questions, call us at (800) 424-9033 or shoot us an email at reachus@marketsmith.com.


Best returns,

The MarketSmith Team