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Earnings Season Statistics

As we head into Q2 (second quarter) earning season I wanted to share some statistics as well as a reminder for swing traders to be aware of the scheduled reporting date for any of your current positions or potential trade candidates that you are monitoring. While long-term investors or trend traders might not be overly concerned with a company's earnings report & guidance, other than maybe to increase or close their position if the fundamental outlook has changed considerable (i.e.- a surprise earnings miss or beat; a dismal or rosy forward guidance from the company), some swing traders prefer to close a position or avoid establishing a new position before a company reports their quarter earnings.

My own preference to hold or fold a position before an earnings report depends on several variables: Does the company have a history of large gaps following earnings or not? Is the position close to my preferred price target? If so, then I might just go ahead & book profits before they report as the risk of giving back my paper gains doesn't warrant holding out for relative small additional gains. Has there been a fairly consistent trend of earnings beats or misses with other stocks within the same sector? More importantly, what has the market's or a specific sector's reaction been to stocks that have recently beat or missed expectations? At times, stocks are sold on good news (earnings beat, positive forward guidance) just as they can rally on what appears to be a lousy earnings report or guidance, which may indicate that the stock is "sold out", assuming that it has been in a prolonged downtrend (latter scenario) or uptrend (former scenario). Ultimately, the decision to hold or fold a position into earnings should boil down to one's tolerance for risk (i.e.- a potential large gap against your position) & time horizon (short-term swing trader vs. long-term investor)

Here are some statistics (source: Wall Street Journal & Goldman Sachs) regarding earnings season:

  • Over the past two decades, 18% of the S&P 500’s total return came from price moves during the week its companies report earnings, according to options-market strategists at Goldman Sachs Group Inc.

  • Last quarter, S&P 500 stocks moved an average of 3.5% in the trading session immediately following earnings, compared with an average daily move of 0.8% on other days, the widest difference on record.

  • Among the five biggest tech and internet companies—FB (Facebook Inc), AAPL (Apple Inc), AMZN (Amazon.com Inc), (Microsoft Corp) and GOOG (Alphabet Inc)—earnings-related moves have an even greater impact on their long-term performance. Over the past three years, 52% of those stocks’ total returns have accrued during their earnings weeks, according to Goldman. That means just 11% of trading days have driven more than half of these stocks' returns, making earnings weeks five times more significant to their share performance than other weeks.

There are several online sources to reference when a company is scheduled to report earnings, including this link to EarningsWhisper.com, which can be found on the sidebar of the RSOTC.com home page under Tools Of The Trade.

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Jul 17, 2017 10:36am|Categories: Trading Tips|0 Comments

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