The Casino is Open. The Earning Season is here.

Quarterly the companies that trade their shares in the market have to present their earnings report.  This is always a season that makes investors and traders very nervous, it´s like showing the results at the end of the course and see if the grade is a fail or pass, and in case of failing, how ugly this failure was.

Before the earnings report is released Wall Street analysts make an estimate of the earnings for the quarter, if the earnings report beats estimates, most of the times it means the share price will raise, if not it will fall.  Trading during the earnings season is always a double edged sword, the best case scenario is to be with wall street estimates and see the company beat those, this will create a buy pressure the day after, raising the price of the stock and leading to fast profits.  If the results are lower then the price will fall, the stop losses levels are hit and the price goes down aggressively.  A good advice, don’t try to trade on the session right after the ER was presented, because it means you’ll arrive too late to the party, when the gap has already formed and people are ready to take profits.   And avoid trading before the ER, it becomes risky and it’s a greedy attitude, you may win or may lose, and that is betting, not trading. There are people who like the excitement of betting this way, but be aware that this specific trade is gambling and your money is at a high risk.

On the other hand, there is not only the reaction to the number reported by itself.  The market evaluates the chances of the company to maintain growth for the next earnings report, the company outlook.  Even good numbers in the ER, may lead to a drop in the share price  if the future for the company is not clear.

There are a couple of cases. Goldman Sachs ($GS) displayed an outstanding ER that the market interpreted as probably overrated, on July 16th, 2013 $GS reported an EPS of 3.70 vs. an estimated $2.82,  and the market let the  price of the stock fall down from $163.86 at the open to $160.21 on the close.  Weren't those good numbers? These are the kinds of surprises that you may find. In the market everything behaves after certain rules, except when they don’t.  So what is your position during the Earnings Season? Step outside, wait and see, or enter the casino?

Now what happens after the Earning Season?  Once the dust has settled and a trend has been established it is the time to ride the stock.  The ER can create a gap up or a gap down, very good for traders who ride the 5 to 8 day period after the gap and then mount on the new trend.  The ER opens a new history in the stock price and a it may ignite a new trend, either up or down, so in my opinion, a wait and see strategy is a better, non greedy, less stressful and more conservative attitude during the incertitude of the ER.  You're not forced to enter the market at this point, you can always enter the market.

Disclaimer

U.S. Government Required Disclaimer - Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results.

At certain times including but not limited to Contest, Educational webinars, strategy and methodology building and testing. Simulated trading or Sim Trading could be applied and used.

The Portfolio is a widget that tracks current live and simulated trades. It is manually updated and subject to human error. It is placed on the site to aid in the testing and performance tracking of the methodolgy used. It should not be used to determine current valuation of portfolio owner. 

CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

This blog author is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities customers should buy or sell for themselves. The blog author may hold positions in the stocks or industries discussed here. You understand and acknowledge that there is a very high degree of risk involved in trading securities. The author assume no responsibility or liability for your trading and investment results. Factual statements on the  website, or in its publications, are made as of the date stated and are subject to change without notice.

It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published are not indicative of future returns by that trader or system, and are not indicative of future returns which be realized by you. In addition, the indicators, strategies, columns, articles and all other features of products (collectively, the "Information") are provided for informational and educational purposes only and should not be construed as investment advice. Examples presented on the blog are for educational purposes only. Such set-ups are not solicitations of any order to buy or sell. Accordingly, you should not rely solely on the Information in making any investment. Rather, you should use the Information only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment.

Bloody Wednesday Bloody

Today market was surprisingly sold, it came to my attention a stock, Bank of America (BAC), down 6% and counting, this fall seemed originally an overreaction by the investors who punished it for not meeting the earnings estimate by 2 cents. But, when taking a look at the sectors, banking, materials, healthcare, technology, basic materials, services, etc. it was a bloody Wednesday. SP500 (SPY) is down 2.88, 1.8% and going down. Mayor market movers are going down, and Apple (APPL) is hitting $400 per share, the old Steve Jobs era saying "I'd buy it if it's shiny and made by Apple" seems to not to be so valid today.

There were some earnings reports, Goldman Sachs was severely punched yesterday after an amazing earnings report.  Normally it's the other way around, but the market thought that it made sense to apply the rule, if something is too good to be true, then it means it's too good to be true, and the argument was that those were signs seen before the house bubble in 2008.  So many people decided to go to the sidelines and see what happens. 

This is a massive stampede where the indexes are going down, and where the only happy people are the pessimists who decided to go short on time.

The recent events in Boston, the suspicious packets found, and the generalized growing psychosis are starting to pay its toll. 

For a while it has been speculated that SP500 will go down since it has reached top values since before the recession, now, the good question, considering it has failed to catch up with the uptrend channel, this could be the first sign of exhaustion, and eventually a market pullback.  Gold has hit new lows, so it starts to become a commodity to consider for runners.  

The factors to consider today are, is this a day when investors simply take utilities? or A major index correction take place after the euphoria seen for the last few weeks?

Probably sticking to the stop levels, going to the sidelines, or short and wait for signs of recovery is a wise decision at this time.

Remember to Read the Disclaimer.