Here's a fact: Traders gravitate towards companies that beat earnings expectations. Why? Because they know they are putting their money to work in companies that outperform.
Here's another fact. MANY companies that report and beat earnings expectations often gap up - move higher - on positive news and ALWAYS (at some point) pullback to levels that make them attractive trading candidates. Here's a prime example below:
As you can see from the above chart on GrubHub, they reported and beat earnings expectations that resulted in a significant gap up on extremely high volume on July 25. The stock then pulled back in a very orderly fashion until it touched its 20 day moving average in mid August. Right then it became a high reward to risk trading candidate with an entry point just above the 20 day, a stop on any close below the 20 day and with a price target of $141, the prior high, which it ultimately hit.
Something also interesting. At EarningsBeats we track companies that report and beat top and bottom line expectations. We then scan the overall list to see which stocks also have charts that make them potential trading candidates. Our latest list contains almost 300 stocks (of which 184 were added recently) which makes it the most we've ever had on our Chart List at one time. I wanted to mention this as it points to the large number of companies that are beating earnings estimates which in turn helps to explain why the market has been so strong lately. In fact, if you want to see the entire list of almost 300 stocks (exclusively for ChartWatcher readers) just click here (https://www.earningsbeats.com/public/Candidate-Tracker-Preview.cfm).
There are many reasons to consider getting involved in a trade but one thing is certain; traders like companies that "walk the walk" and there's nothing like topping earnings expectations to prove something is working right.
At your service,