Examining Market Response to Earnings Reports


When the market is under fire like it has been for the past few weeks it becomes harder to trade successfully. This is particularly true if your focus is on the long side.

One way we've tried to combat a difficult trading environment at EarningsBeats is to focus specifically on those companies that beat earnings expectations with the theory being they will hold up the best, no matter market conditions. But that strategy can prove to be tricky when the market moves into a "shoot first and ask questions later" mode.

As an example, we issued a long alert on ETFC on October 24 after it posted strong earnings. It had gapped up on strong earnings and looked like a good reward to risk trading candidate on a pullback. But right out of the chute the stock continued to move lower, resulting in a failed trade.

It turns out that the most recent leg down in the market started on October 24, the same day of the ETFC alert. In fact, the NASDAQ was down 8 straight days in a row. So the timing of the alert was unfortunate; the strength of ETFC's earnings was not enough to avoid getting sucked down with the rest of the NASDAQ.

This doesn't mean there aren't stocks that hold up better than other ones when the market is unraveling. Traders DO have a tendency to flock to those stocks with strong fundamentals and strong charts when things are rocky. So it makes sense that your odds of experiencing a successful trade increase if the market cooperates as well

I will be conducting a webinar on Thursday, November 10 at 4:30 pm eastern where I will be showing examples of stocks that reported strong earnings and how they performed during the recent pullback. This will include some that held up well and some that fell apart. Then we'll have a discussion to see if there were tell tale signs that might have predicted which ones were more likely to succeed, or fail. If you want to join me for this FREE webinar just click here.

At your service,

John Hopkins

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