Let’s review a common scenario investors come across as they wake up to their portfolio in the morning:
The Dow is up 250 points; it’s going to be a good day.
Stock A is up 1.5%. That was a good pick!
Stock B is up 2.3%. What a beast!
Stock C is down 10% and falling fast! What the heck???
It turns out stock C reported earnings above expectations, but investors are not happy. So, what happened?
And why is this stock going down when they had a good quarter above everyone’s expectations?
There are many reasons why a stock might go down after a solid earnings report. It could be profit taking, margins are weakening, competition, or maybe the CEO is leaving. But more often than not, computer-driven trading is forcing investors to sell when they don’t want to.
Some of the aggressive drops in stocks are scaring investors into selling, when they actually should be buying for the longer run. I’ve found that times in the aftermath of earnings seasons (like now!) bring us a multitude of opportunities.
These opportunities are plentiful and there are traders making money hand over fist. Perhaps the greatest chance to profit in 2021 is coming over the next month, when a volatile earnings season comes our way.
Because of the uncertainty surrounding corporate earnings and the reopening, the moves both higher and lower after companies’ report will be historic. It will be commonplace to see the stock prices after earnings yield big moves of 10-30% in a single day, which means your opportunity to make money is great than ever.
An Explanation of Earnings Season
Earnings season happens four times a year and is typically the busiest around weeks four through seven of the quarter. This is when the majority of the S&P 500 companies will report how their business has done in the previous quarter. A company will report revenue and a bottom-line number called earnings per share, or EPS. This number is basically the company’s profit for each outstanding share of common stock.
Often the company will have a conference call and issue guidance for the quarter or year ahead. This gives analysts, traders and investors a clear picture of what to expect in the coming quarter.
More . . .
------------------------------------------------------------------------------------------------------
Is the Market Rigged?
How often have you owned a stock that gets pummeled with no logical explanation? This is often caused by computer-driven High-Frequency Traders (HFT). They fire off massive amounts of short trades to drive stock prices down, then profit from the rebound.
Their gains come at the expense of human investors.
The good news is that Zacks has mounted a Counterstrike to catch the best of these “manipulated price drops” as they rebound. For example, we recently closed gains of +40.2%, +49.1% and +62.0%. One even closed at a remarkable +252.0% in less than a month.¹
Access to these trades must be limited. It closes to new investors Sunday, July 11.
See Counterstrike Stocks Now >>
------------------------------------------------------------------------------------------------------
Stock Volatility After Earnings
Traders will quickly react to the news, buying or selling the stock based on whether that outlook is positive or negative. If the news is a surprise, the market can be shocked and react in a major way. This is why a stock can move over 10% in one day.
In today’s modern markets, computer algorithms can actually read headlines and trade off of them in a heartbeat. These computers can react quicker than humans, often causing irrational moves higher or lower. The big moves can lead to human panic as they see their stock dropping fast and their losses adding up.
It’s hard for humans to win the speed game, but with patience and a little discipline, investors are taking advantage of the irrational moves the computer traders create. Buying a stock after earnings move lower is a strategy working over and over again for many traders.
These post-earnings bounce plays can lead to 10-30% gains in a matter of months, weeks or even days!
The Reopening Will Amplify Stock Movements
With so much uncertainty surrounding the current market environment, it’s hard for market participants to price stocks. When a company reports earnings and gives guidance, traders will be given some clarity and will be able to price accordingly.
A lot of stocks have rallied in anticipation of the reopening. When we get earnings, we will see how good, or bad, the reopening has been for individual companies. The market will then reprice the stock based on results and create volatility.
This earnings volatility creates opportunity.
How to Trade Post Earnings
Whether you are trading earnings before or after the number, knowing who is reporting is key. Paying attention to the list of companies reporting every week can be found via the Zacks earnings calendar.
Use these steps below to find ripe opportunities after a stock has reported earnings.
1) Watch for Moves in the Zacks Rank - The first step I take is to check the recent Zacks Rank #1 (Strong Buy) stocks every morning. When I see a fresh stock on the list that has recently moved lower in price due to earnings, I get interested. Then I check the EPS numbers and guidance to make sure there was no big negative signal. If not, I go on to the estimates page for the stock and see if analysts are taking the numbers up or down.
Why would investors sell a stock, when analysts are raising estimates and still bullish? Well, this makes me think there is some manipulation brewing and the stock has moved irrationally lower.
2) Check for Technical Support - After the fundamentals check out, it’s time to look at the chart. Moving averages, trend lines, and Fibonacci levels are used as support levels by computer and human traders alike. If I see a level tested and support is confirmed, it’s time to buy.
3) Entry Price, Target, and Stop Loss - Entering the stock takes patience, but it's paramount you get in at a decent price. When entering a trade, you should have a target, or even multiple targets, where you will sell and close out a winning trade.
Capital preservation is paramount. Stop losses are important for investors and traders so they can live to fight another day. You must not get married to a stock! Taking losses are just as important as taking winners and stop loss orders assist in that discipline.
How to Capitalize
The current atmosphere is not your typical stock trading environment. The Fed is about to start the tapering talk and the reopening trade is largely priced in. This combination could cause outsized earnings moves.
The opportunities during this earnings season will be plentiful due to the recent volatility. The mission of our portfolio, Zacks Counterstrike, will be to catch these big moves, playing both the long and short side of the market.
I plan to be in before and after earnings depending on the situation and look forward to capturing the big moves that are coming our way. The upcoming quarter will be important for stock prices, join me and let’s profit from it!
Our goal: Quick and consistent profits.
For example, we recently closed gains of +40.2%, +49.1% and +62.0%. One even closed at a remarkable +252.0% in less than a month.¹
Sound interesting?
Look inside our Counterstrike portfolio today and you may also download our Special Report, 7 Best Stocks for the Next 30 Days, absolutely free. These buy-and-holds are the perfect complement to Counterstrike's faster-action trades. Zacks experts reveal stocks believed to have great upside potential over the next 30 days.
Important Note: Access to Counterstrike is limited and your chance to look in and claim your free bonus report ends Sunday, July 11.
Get exclusive access to Zacks’ Counterstrike portfolio now >>
All the Best,
Jeremy Mullin
Editor of Counterstrike
Jeremy Mullin has been a professional trader for more than 15 years with specific expertise in profiting from patterns set by High-Frequency Traders. He is the editor of Zacks Counterstrike.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position.
Image: Bigstock
How Traders Will Beat Wall Street This Earnings Season
Let’s review a common scenario investors come across as they wake up to their portfolio in the morning:
The Dow is up 250 points; it’s going to be a good day.
Stock A is up 1.5%. That was a good pick!
Stock B is up 2.3%. What a beast!
Stock C is down 10% and falling fast! What the heck???
It turns out stock C reported earnings above expectations, but investors are not happy. So, what happened?
And why is this stock going down when they had a good quarter above everyone’s expectations?
There are many reasons why a stock might go down after a solid earnings report. It could be profit taking, margins are weakening, competition, or maybe the CEO is leaving. But more often than not, computer-driven trading is forcing investors to sell when they don’t want to.
Some of the aggressive drops in stocks are scaring investors into selling, when they actually should be buying for the longer run. I’ve found that times in the aftermath of earnings seasons (like now!) bring us a multitude of opportunities.
These opportunities are plentiful and there are traders making money hand over fist. Perhaps the greatest chance to profit in 2021 is coming over the next month, when a volatile earnings season comes our way.
Because of the uncertainty surrounding corporate earnings and the reopening, the moves both higher and lower after companies’ report will be historic. It will be commonplace to see the stock prices after earnings yield big moves of 10-30% in a single day, which means your opportunity to make money is great than ever.
An Explanation of Earnings Season
Earnings season happens four times a year and is typically the busiest around weeks four through seven of the quarter. This is when the majority of the S&P 500 companies will report how their business has done in the previous quarter. A company will report revenue and a bottom-line number called earnings per share, or EPS. This number is basically the company’s profit for each outstanding share of common stock.
Often the company will have a conference call and issue guidance for the quarter or year ahead. This gives analysts, traders and investors a clear picture of what to expect in the coming quarter.
More . . .
------------------------------------------------------------------------------------------------------
Is the Market Rigged?
How often have you owned a stock that gets pummeled with no logical explanation? This is often caused by computer-driven High-Frequency Traders (HFT). They fire off massive amounts of short trades to drive stock prices down, then profit from the rebound.
Their gains come at the expense of human investors.
The good news is that Zacks has mounted a Counterstrike to catch the best of these “manipulated price drops” as they rebound. For example, we recently closed gains of +40.2%, +49.1% and +62.0%. One even closed at a remarkable +252.0% in less than a month.¹
Access to these trades must be limited. It closes to new investors Sunday, July 11.
See Counterstrike Stocks Now >>
------------------------------------------------------------------------------------------------------
Stock Volatility After Earnings
Traders will quickly react to the news, buying or selling the stock based on whether that outlook is positive or negative. If the news is a surprise, the market can be shocked and react in a major way. This is why a stock can move over 10% in one day.
In today’s modern markets, computer algorithms can actually read headlines and trade off of them in a heartbeat. These computers can react quicker than humans, often causing irrational moves higher or lower. The big moves can lead to human panic as they see their stock dropping fast and their losses adding up.
It’s hard for humans to win the speed game, but with patience and a little discipline, investors are taking advantage of the irrational moves the computer traders create. Buying a stock after earnings move lower is a strategy working over and over again for many traders.
These post-earnings bounce plays can lead to 10-30% gains in a matter of months, weeks or even days!
The Reopening Will Amplify Stock Movements
With so much uncertainty surrounding the current market environment, it’s hard for market participants to price stocks. When a company reports earnings and gives guidance, traders will be given some clarity and will be able to price accordingly.
A lot of stocks have rallied in anticipation of the reopening. When we get earnings, we will see how good, or bad, the reopening has been for individual companies. The market will then reprice the stock based on results and create volatility.
This earnings volatility creates opportunity.
How to Trade Post Earnings
Whether you are trading earnings before or after the number, knowing who is reporting is key. Paying attention to the list of companies reporting every week can be found via the Zacks earnings calendar.
Use these steps below to find ripe opportunities after a stock has reported earnings.
1) Watch for Moves in the Zacks Rank - The first step I take is to check the recent Zacks Rank #1 (Strong Buy) stocks every morning. When I see a fresh stock on the list that has recently moved lower in price due to earnings, I get interested. Then I check the EPS numbers and guidance to make sure there was no big negative signal. If not, I go on to the estimates page for the stock and see if analysts are taking the numbers up or down.
Why would investors sell a stock, when analysts are raising estimates and still bullish? Well, this makes me think there is some manipulation brewing and the stock has moved irrationally lower.
2) Check for Technical Support - After the fundamentals check out, it’s time to look at the chart. Moving averages, trend lines, and Fibonacci levels are used as support levels by computer and human traders alike. If I see a level tested and support is confirmed, it’s time to buy.
3) Entry Price, Target, and Stop Loss - Entering the stock takes patience, but it's paramount you get in at a decent price. When entering a trade, you should have a target, or even multiple targets, where you will sell and close out a winning trade.
Capital preservation is paramount. Stop losses are important for investors and traders so they can live to fight another day. You must not get married to a stock! Taking losses are just as important as taking winners and stop loss orders assist in that discipline.
How to Capitalize
The current atmosphere is not your typical stock trading environment. The Fed is about to start the tapering talk and the reopening trade is largely priced in. This combination could cause outsized earnings moves.
The opportunities during this earnings season will be plentiful due to the recent volatility. The mission of our portfolio, Zacks Counterstrike, will be to catch these big moves, playing both the long and short side of the market.
I plan to be in before and after earnings depending on the situation and look forward to capturing the big moves that are coming our way. The upcoming quarter will be important for stock prices, join me and let’s profit from it!
Our goal: Quick and consistent profits.
For example, we recently closed gains of +40.2%, +49.1% and +62.0%. One even closed at a remarkable +252.0% in less than a month.¹
Sound interesting?
Look inside our Counterstrike portfolio today and you may also download our Special Report, 7 Best Stocks for the Next 30 Days, absolutely free. These buy-and-holds are the perfect complement to Counterstrike's faster-action trades. Zacks experts reveal stocks believed to have great upside potential over the next 30 days.
Important Note: Access to Counterstrike is limited and your chance to look in and claim your free bonus report ends Sunday, July 11.
Get exclusive access to Zacks’ Counterstrike portfolio now >>
All the Best,
Jeremy Mullin
Editor of Counterstrike
Jeremy Mullin has been a professional trader for more than 15 years with specific expertise in profiting from patterns set by High-Frequency Traders. He is the editor of Zacks Counterstrike.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position.