Holding Stocks into Earnings can be Costly


We're now in the thick of Q3 earnings season when thousands of companies will report their numbers over the next several weeks. Earning season kicked off when Alcoa reported its numbers early last week and served as the poster child of why it's a crap shoot at best to hold a stock into its earnings reports.

You can see in the chart below that AA reported its numbers before the market opened on October 11 and you can also see that the stock got crushed, losing almost 17% over the next few trading days.

Interestingly, AA had climbed nicely off of its recent bottom on September 20 and looked poised to go higher But traders were disappointed in their numbers with the stock pulling back to levels not seen since mid May.

Not every stock that reports earnings gets slammed like Alcoa did. Plenty of stocks move higher after they report results. But the problem is there's simply no way of knowing how the market will respond to an earnings report, and therein lies the problem; it's just not worth the risk.

At EarningsBeats we scour the market for companies that beat earnings expectations and have solid charts. And instead of participating in a trade into an earnings reports we watch to see the market reaction once the numbers are released and how the stock performs in the following days. Then once the dust settles a stock might become a high reward to risk trading candidate and end up on our "Candidate Tracker." This in turn allows our members to decide if they wish to take on a position. If you would like to see a sample of our Candidate Tracker just click here.

Earnings season can be an exciting time for traders. It's the time of year when companies get to show their financial strengths and weaknesses. It's also a time to be careful to not put your precious capital at unnecessary risk.

At your service,

John Hopkins

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