How to trade earnings

- for trading earnings additional good source is BEspoke premium which gives historic trades on earnings breaks.
- this stockbee subscription seems 2 nd best one, since Pradeep specialized in earnings.

The earning season is fast approaching. Earning season offers some of the best opportunities for profitable trading. PEAD or post earnings announcement drift is a well studied and proven market anomaly. Stocks which have significant earnings surprise or acceleration, breakout post earnings and rally for next 3-6 months as market reacts to this new earnings power. Sometimes these rallies last years.

So if you are looking for a profitable strategy to trade, you might be interested in putting together a working plan for next earning season.

* Earnings Data Sources: You need a reliable source for earnings. I use the Investors Business Daily and Wall Street Journal for this. Besides these two there are many other sources of earnings. When choosing a source I look at how they adjust earnings for one time events. Overall IBD does a better job on this.
* Three types of earnings announcements: Earnings announcements are made after close, before close and in some rare set of companies during market hours. I concentrate on the earnings announced after market close. They appear in the IBD daily edition under 'Company Earnings Report' section.
* What to look for in earnings: To narrow the set of companies to track and trade for this strategy, based on my prior experience, I only track companies whose earnings are up 100% or more quarter over quarter and the earnings should be at least 5 cents. Sales/revenue should be up 5% or more. Doubling of earnings is significant. Few companies meet that criteria. So I put all the stock meeting this criteria in a list. Now what one is looking for is earnings acceleration. IBD will have those stocks with up arrow to indicate earnings acceleration. Besides that I look for price action on that stock by looking at how much they are up in last 65 days or so. I am looking for stocks which have not rallied in anticipation of earnings. Even better is stock which has no analyst coverage and is neglected. Stocks with less than 100% plus earnings also breakout, but to prioritize, I only focus on above 100.
* Breakout: An earnings surprise on stock which has not rallied significantly will lead to breakout next day. Most of the time I will enter in the morning and add to position later if the volume climbs above average volume. Many times such stocks will gap up 5 to 300% on day of earnings and still make further moves of 20 to several hundred percent in next 3 to 12 months. I look to capture such moves. Most of these breakouts will have minor pullback at best and just go up for 2 to 6 weeks before having a reaction. So if you don't enter on the earnings day you will be just a observer.
* Stops: I put stops 1 dollar below the gap low if it is gap up or at 2 days low and trail with stop. In these trades I move my stops quickly once it makes 20% move. Objective in such method is to capture several 20% moves.
* Watchlist: I maintain a watch list of stocks which respond with a high breakout on earnings day of 4% plus for next one year. These stocks often have several more breakouts during the year and make multi month or multi year moves. All major movers like NTRI, HANS, TIE, AAPL, ICE, GROW and several others had series of 100% plus earnings growth during their entire rally period. The oil stocks which had a stellar rallies for last couple of years or the steel stocks also had several triple digit earnings.
* How many opportunities: Even in bear markets you will find opportunities using this strategy. If you set up your system properly, you should find 20-25 opportunities like this in every earnings season. When market expectations are low, or market has had several months of correction, you will find 50 to 100 opportunities in an earning season.

So if you are looking for making gang buster returns in this coming earning season, just get your databases and information sources in place and you will find several opportunities. This is one trade which is easiest to trade as there is clear identifiable catalyst. Plus in a year there are 4 earnings season.

Season of profitable opportunities starts next week. You will be pleasantly surprised by the results you get. Carpe diem.
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How to profit from earnings season
July 07, 2009 -- asr recent 2009 article

So when a company announces earnings and it is "surprisingly" good or bad it leads to a rally lasting 2 to 3 months. Earnings EP are easiest to understand and act on. The market reaction tells you whether this earnings was :surprise" and "significant". The stock will immediately go up post such announcement and the move will be supported by high volume. You can create a scan captures such breakout. It should basically looks for a out-sized price move on high volume post earnings. One of the simple way to create a scan like this in Telechart is:

((C - C1) >= 5 AND V > 10000 AND C >= 62.50 AND V > V1) OR ((( 100 * (C - C1) / C1) >= 8 AND V > 3000 AND (100 * V / AVGV100) >= 300) AND C > 1)


Guideline for finding good earnings breakouts:

* 100% plus EPS+100% plus sales+ first or second earnings acceleration+float below 25 million+prior neglect+no analyst coverage. Best combination
* 40% plus EPS+ IPO of less than a year. Second best combination.
* 100% plus earnings surprise+below 100 million float+ one month price growth below 5%+first earnings surprise. Third best combination.
* Retailer+price within 25% of 52 week low+earnings surprise of 25% plus+float below 100 million. Fourth best combination.

http://stockbee.blogspot.com/2007/01/trading-earnings-breakouts-part3.html
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http://stockbee.blogspot.com/2007/04/earnings-and-bulkowski.html

http://stockbee.blogspot.com/2007/06/indicator-marking-in-telechart.html


stockBee site also gives this 25% up, down etc. screens
http://stockbee.blogspot.com/2009/03/49-stocks-are-up-50-plus-in-month.html