How to trade stocks during profit season; Special care is needed

Third quarter winning season shifted into high gear last week with the much anticipated results from the tech titans Netflix (NFLX) and You’re here (TSLA). This is the time when stock market leadership is fully revealed, as investors react to the results.


Profit reporting causes many of the biggest moves in stocks and needs special attention. Strong earnings can take major stocks to never-before-seen levels – and above new buy points – while a less than impressive announcement can bring stocks down.

Companies publish their earnings reports four times a year, a few weeks after the end of each quarter. Quarterly reports give investors the opportunity to examine the performance of the company at a detailed level. From there, analysts and professional fund managers use this information to project the company’s future earnings and sales growth and create price targets for the company’s stock price.

The reaction of the stock market to a earnings release can often tell you more than the earnings themselves. If the results look strong but the stock slips anyway, investors may worry about the sustainability of growth, rising costs, or a myriad of other potential negative effects.

Conversely, weaker than expected results with a positive reaction from equities could mean that the future of the company is bright despite the unexpected weakness.

Discover the IBDs Earnings calendar for income overviews, income due dates, Investment action plans, and actions near shopping areas before the winnings.

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How to trade stocks for profit

With the return of the stock market in a uptrend confirmed, following October 14 follow-up day, investors should now look for stocks to buy that exceed their correct buy points in large volume.

Investors know they should buy stocks on the day in small groups, but what if the gains come soon after the breakout?

While there is no hard and fast rule to follow, there are a few different strategies to help mitigate risk before results are released.

One is to buy half of the normal number of shares on the breakout. This way, if the stock reacts positively to the profits, you can end the position with a lower average cost than if you had initiated the entire position after the profits. Conversely, if the stock is sold, you can sell the stock at a lower loss as possible.

Two you can use IBD Earnings Options Strategy. In 2016, IBD introduced a option strategy to limit the risk of gains. The strategy offers a way to capitalize on the upside potential of a stock’s earnings trend, while reducing the risk of a negative reaction. Weekly or monthly options can be used, provided the cost of the option is correct.

Breaking gaps can lead to even bigger gains

As the earnings season is in full swing, investors should keep a close watch on major stocks over the coming weeks when they release their financials. A positive result can trigger a breakaway gap. This happens when demand to buy greatly exceeds supply at current levels, causing the share price to rise sharply.

A typical example of a breaking gap occurred on March 28, 2018 in the shares of Lululemon (LULU). Shares jumped more than 9% in volume after the firm’s stronger-than-expected earnings and sales. The stock briefly traded at the 83.41 buy point and closed in the 5% buy zone. The stock stretched the next day.

Over the next seven months, Lululemon would advance up to 97% before his next basic training.

Sometimes a stock digs so hard that it won’t trade within 5% of the appropriate buy point, you want to wait for the high price of the first five minutes to appear using an intraday chart of five. minutes. Buy stocks as close to this price as possible, as the stock breaks above that level.

How to trade stocks: AMD in buy range before profits

Chip leader Advanced micro-systems (AMD) erupted after a double bottom 114.59 point of purchase Monday and is in the 5% shopping area, which peaks at 120.32. Bullish, the stock is line RS is at recent highs, reaffirming the title as a market leader. According to IBD Inventory Check, AMD claims a perfect 99 IBD Composite Rating.

But don’t get too excited just yet. The company’s results are expected after the market close on Tuesday. Analysts expect the company’s profits to jump 61% to 66 cents a share on revenue of $ 4.1 billion. These results will be a deciding factor in the overall success of the escape.

Be sure to follow Scott Lehtonen on Twitter at @IBD_SLehtonen to learn more about growth stocks and the Dow Jones Industrial Average.


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