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Another Way To Play An Earnings Report


If you are worried about missing a move, remember a solid stock always gives multiple entry points such that missing a post earnings move becomes irrelevant.


This week we have some very big reports on tap. Tonight we have Intel (INTC) and IBM (IBM) and Thursday is Google (GOOG). Many will talk about trying to game these reports and venturing into these stocks in one direction or another. I never understand this discussion and it seems like a very risky attempt at some excitement.

Four times a year, the financial markets pause to take a glance at how companies have been faring for the previous three months. While this is supposed to be a time of reflection and a glance under the hood, it has become a circus were stock prices fluctuate wildly as the underlying company misses, meets or exceeds analyst expectations. It isn't uncommon to see a stock swing a great percentage after reporting earnings, which of course opens the door for those seeking to make a quick buck off a higher than normal beta.

There are many discussions after an earnings report surrounding what a company reported, what it expects to report in coming quarters, what it says on the conference call and, last but not least, the stock holders' reaction. While it is always an interesting discussion, I take a much different approach to earnings season in that I want to be far away from anything that reports anytime soon.

Sure, it isn't sexy and often it may be downright boring, but it has been my experience that taking a chance on earnings is a battle I don't even care to fight.

Every time we roll into earnings season I will run through the stocks that are reporting each day and for the next few days coming up. Should I have a stock that falls on this list, I will immediately pare back and reduce my exposure. I have no desire to even take a chance with the risk associated with an earnings report, so I typically sell first and ask questions later.

In my opinion there are far too many obstacles facing an individual investor that even attempting to game an earnings report is an exercise in futility. Why not wait until a report has been issued, the reaction is favorable and the stock sets up in a prudent fashion before entering your trade? If you are worried about missing a move, it has always been my experience that a solid stock always gives multiple entry points, such that missing a post earnings move becomes irrelevant.

The problem of course with earnings season is the simple allure of riches and big moves. The trader seeking excitement enters a stock knowing a true catalyst is around the corner. If it works, great, the stock moves higher and the trader is rewarded, however if it doesn't the stock will head lower and now the trader is stuck in a losing position, facing the psychological issues that all traders face holding a laggard.

Do they then possess enough discipline to cut the position and move on or do they start grasping for hope and hold in anticipation of a bounce? Not only is the financial capital hit, but the emotional capital takes a hit as well. Pretty soon, the trader is paralyzed and has not only lost on this trade but has missed other opportunities as well.
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