Earnings: The Most Important Catalyst For Traders

Let's get a few things out of the way first:

  • I believe earnings reports provide the best and most consistent catalyst for trading.
  • I believe waiting for an earnings report to occur ('post earnings') before executing a trade will provide the most consistent and profitable trading results.
  • I believe expectations drive all markets.
  • I believe there is no one trading methodology that is perfect (or even close to perfect). In other words, do your homework.

These beliefs are based on my 18 years of experience with collecting, reviewing, sampling, and analyzing earnings expectations (whisper numbers). They are the basis of my articles, thoughts, and analysis presented here.

At the beginning of every week, I will review prior commentary to see what progress has been made. And then I will list those stocks that consistently see positive or negative price movement based on historical analysis of beating or missing earnings expectations. (It should be noted that not all stocks see consistent post earnings price movement in an 'expected' direction.)

Let's look at some highlights from the past few weeks alerts - all alerts were issued pre-market open on the date listed with an entry at market open:

A positive price move was expected after Coach (COH) reported earnings of $0.45. This was four cents ahead of the analysts estimate and two cents ahead of the whisper number. The average 25-day price move when exceeding the whisper number is +10.5%. Coach opened trading on 8/9 at $40.03 and currently trades at a $40.47 level and rising. Immediately following earnings the stock moved 2.6% lower (against our expectation). It's good to see a move in the right direction and we have a ways to go to the anticipated exit date of 9/13.

A negative price move was expected after Disney (DIS) reported earnings of $1.62. This was one cent ahead of the analyst estimates but two cents short of the whisper number. The average 25-day price move when missing the whisper number is -6.5%. Disney opened trading on 8/10 at $96.70 and currently trades at a $95.97 level and falling. A negligible move to date as we're still a ways away from our anticipated exit date of 9/14.

A positive price move was expected after Macy's (M) reported earnings of $0.54. This was nine cents ahead of the analysts estimate and ten cents ahead of the whisper number. The average 20-day price move when exceeding the whisper is +4.4%. Macy's opened trading on 8/11 at $38.90 and currently trades at a $40.00 level and rising. A 2.8% gain in this position is halfway to our price target and we're still a ways away from our anticipated exit date of 9/8.

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