Market old timers will tell you that earnings season officially begins with Dow component Alcoa (AA). Last week, AA announced better-than-expected numbers on Monday 7/8 after the bell, and we had some major banks announce at the end of the week. JP Morgan (JPM) and Wells Fargo (WFC) numbers hit the wire before the market opened on Friday. Earnings season is clearly upon us and this time of the year carries more risk than usual for a swing trader.
This past week my colleague, Ryan Detrick, suggested that earnings season may have rather low expectations, and how this could be bullish. At Schaeffer’s, we like to buy low expectations—not necessarily low prices. Sentiment can certainly play a huge role with regards to the fundamental numbers of a company and their earnings and revenue growth. Even the slightest earnings beat (or miss) can spark a huge rally in a stock—so you have to be mindful of such possibilities.
Risk is certainly an important element to trading. We have to be willing to accept the risk that comes with each trade we make, or we should not be making that trade at all. When trading around earnings season, my advice is to simply check, and re-check, your positions to see when the company reports. I’d consider subscribing to Briefing.com—a well known site with reliable earnings information. Briefing will give you all confirmed market dates for companies and their quarterly announcements. For example, here is today’s earnings lineup for both before and after the market closed. You can look at it here.
Consider whether or not you want to hold your current positions through the earnings date, or if you want to make new trades before such events. Risk tolerance is relevant to the individual making the trades. Personally speaking, I generally do not like holding through earnings and will avoid trading through announcements with most of my trades. Others like strictly buying right ahead of earnings events—unfortunately, I have found no edge in this area. I find that the news that comes with earnings season is too unpredictable. Even if a company posts numbers that handily beat analysts’ estimates, there’s never the guarantee that you’re going to get that upside breakout—the same goes for numbers that fall hugely short. You just can’t expect big downside follow through in the stock when the market opens. Remember, when you’re swing trading based on technicals, events such as these can completely break a chart. Find what works best for you.
Good luck trading out there.