What Earnings Season is, When it Occurs, and How to Make the Most of it
After each quarter ends, companies release their quarterly reports, and this is called earnings season. That’s the simple answer to what is earnings season, but when, exactly, is it?
We’re repeatedly asked where you can find earnings dates. Unfortunately, there’s no one easy place that we know of—we usually sift through press releases of individual companies to find them, and then relay them in our advisories. For most companies, it’s a week or two after the current quarter has ended.
You can’t really prepare for earnings season because you can’t predict earnings— a stock’s reaction is mostly a roll of the dice. However, there are a couple of rules for earnings season we do take note of before a company reports during earnings season.
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Don’t Predict What Will Happen During Earnings Season—But Do Watch for These Two Factors
First, we ask if the stock has had any meaningful corrections during the past five or more months. “Meaningful” is admittedly subjective, but usually we’re talking about a four-plus week retreat that takes the stock down 15% or more and below the 50-day line. If a stock has been kiting higher for five-plus months, it’s fair to say there is some pent-up selling pressure and expectations for the quarterly report are high.
Second, we look at the stock’s reaction to its past three reports. If all three led to an immediate gap up (even only 3% or 4%), it’s also likely that expectations are elevated heading into the current report, which raises the prospects of a poor reaction.
Even so, if these two criteria are met, it doesn’t mean you should sell out of a stock ahead of earnings season. But it does give you a heads up that risk is high.
On the other hand, it’s good to keep an eye on stocks that are in longer-term uptrends but have been building new launching pads during the past few weeks, thus shaking out some weak hands and raising the odds of a positive earnings reaction. Or, even if a stock is in an uptrend, I like to look for relatively “early stage” stocks—those that just got going a few weeks ago, meaning there are still plenty of investors who want in, if the numbers are well received.
The Three Day Rule to Keep in Mind During Earnings Season
If one of your stocks (or a stock you’re waiting to buy) blows up this earnings season, keep in mind our “Three Day Rule” on the old trading floor rule that warns about buying immediately after an earnings miss. Here’s a link to a piece we wrote on The Three Day Rule.
Big picture, our takeaway for earnings season is like our overall plan for trading. Work and research hard, execute trades you believe in, and over time, the many winners will far outweigh the occasional earnings blowup.
Do you feel like you now understand earnings season, and when it is? What other questions do you have that we can answer?