Navigating the Most Exciting Time — Earnings Season!
I can’t help it.
Earnings season is like having Christmas four times a year.
It is one of the most exciting times to be in the market. There are practically hundreds of companies reporting their financial results for the quarter every week. A whirlwind of news gets dumped into the markets. It creates big price swings up and down.
It’s easy to get caught up in the hype, or spectacle, of earnings. Prices spike and fall beforehand, when there’s much anticipation about what a company will report.
Then, the hype dies down once the earnings are released and stocks make moves.
This is when most investors lose interest. But, that’s when some real profits can be made.
Here’s how to navigate earnings season like a pro…
Most People Trade Earnings Wrong
The trick is to not get caught up in the spectacle of the event.
I know it’s tough — it’s where all the excitement is.
Huge, double-digit moves in a matter of days or weeks in both directions are the types of events most traders live for.
They watch the big day with anticipation. There’s wall-to-wall coverage on CNBC. The Wall Street Journal has nonstop predictions.
Here are some recent headlines on tech giant, Apple…
This hype is why investors love to gamble on the event. They think — for better or worse — that this is a huge opportunity.
Now, it can pay off big-time if they make the right bet. Netflix, the streaming giant, jumped as much as 18% on strong earnings in January. And brick-and-mortar retailer Best Buy sunk 10% after posting weak results.
But no one — and I mean no one — can predict the price move on a single event like earnings with a high percentage of profitable trades.
You are going to lose on most of your trades. The gamble is whether that one winner will make up for all those losses…
I’ll cut to the chase — it won’t.
It’s no better than spinning the wheel at a casino.
But there’s no question that earnings reports are a big deal for corporations. The data they lay out in their earnings reports are sometimes the only inside look we get. And they happen just four times a year.
That’s why I spent years researching the event itself, only to discover that the most profitable way to trade earnings isn’t to gamble on the event, but to trade the “earnings drift.”
And that’s what gets me excited…
What is “Earnings Drift”?
The earnings drift is the phenomenon where the company’s stock price trends in a certain direction after posting an earnings beat. The trick is picking the right direction.
Now, I’ve narrowed it down to a list of fewer than 80 companies that experience this drift most consistently. And it is a unique drift pattern for each company.
One of the most popular drifts, and the one that works more times than not, is simple.
When a company beats earnings expectations by more than 5% and the stock jumps by more than 5%, you can look for shares to climb even further over the following weeks.
Earlier this year, Western Digital, a data storage and solution company, beat earnings expectations by 27% and the stock jumped 11% as a result.
Over the next 38 days, the stock went on to rise more than 17%.
That’s a nice move that was all based on the earnings drift.
I recommended readers trade the move with call options, which gave us leverage on the expected drift. It paid off big-time and we walked away with a 146% gain in the same time period.
Try it out this earnings season for yourself.
Find a handful of companies that beat their earnings estimates by at least 5% and then popped 5% after the earnings report.
Scoop up shares of those stocks and see if they outperform over the next few weeks.
And if you want to get in on the action right away, with my short list of companies that have the best track records after earnings, then you can learn how to join us by clicking here.
I hope that you see the same earnings potential that I do this earnings season.
Chad Shoop, CMT
Editor, Quick Hit Profits