Hi guys,
Hope you are doing well.
I want to know how you guys trade during and near earning declaration date of a particular stock? Many a time we get to see the big gap ups and gap downs.
How to get a probabilistic idea about the earings, whether it will be positive or negative? so that we can take the trade to get benefits of these gap ups and gap downs.
What sort of analysis do you guys do?
please suggest.
We have to read what the market expectation is going into the results. We can do this by reading analysts expectation/the estimates shared by brokerages.
Not only that, we have to see how the stock has performed prior to the event. Is the good/bad results factored in the price.
How is it looking technically, need to check if it’s below support levels and oversold in anticipation of weak results and vice versa.
These are some of the basic pointers.
As it involves lot of uncertainty, it’s better to either avoid or trade with very less quantity during such events
One other thing that can be looked at is the performance of the sector or industry the stock belongs to. Sometimes there could be momentum in all the stocks, sometimes not for many reasons.
Chart reading along could be enough to gain insights if the trade holding period or capital allocation is less, if the holding period is long or capital is big, reading about the fundamentals and knowing market’s view for the individual stock or the sector helps.
And if the earnings beat market’s estimates price can go much higher, or lower if earnings are reported less.
Are you talking about FnO stocks alone or all stocks?
Any stock in general.
Best example is today’s SBIN . Results is positive at face value, then again stock tumbled down badly. Reason is simple… the entire APRIL month factored in the expected results.
How do we get the idea about the result is already factored in the price of not?
You can’t. That’s the game.
I’m talking about getting an idea, not about certainty. As a trader, you need to be a probabilistic thinker
That’s the actual game.
Tracking how the stock fared in the last week to month can give us a good indication.
Also reading about what’s happening in that sector helps
Check the charts. How the price moved in realation to the nearest support and resistance. If it is facing resistance and results expectancy is positive…then probability of breakout is higher.
Where as , if price goes one way up in entire month ( SBI case ) , then probability of profit booking rises. And the operators select times like results and news , so that they can get maximum liquidity and or volume.
If you are allocating big capital, taking fewer trades, and if the holding period is long, then I think it is better to know about the business along with looking at the charts. Because investors who follow the business build positions continuously, much before the changes in the business bring in the profits. A lot of investors follow valuation models, some don’t mind buying at higher prices than their average because the business will be profitable in the future too, so while the volume may not look high, price increases.
Look at any significant price movement at different price levels, along with volumes, which signifies a buildup for good results. Check monthly charts for more insights.
For traditional sectors, with long history, unless there is a significant change in the business, like capacity expansion, going to new geographies, launching new products, the profits and margins are known to the market.
Sometimes there could be strong momentum across the board in sectors, commodity type businesses like sugar, cement, metals etc, and here momentum is clearly seen because of tailwinds. So experienced traders take bigger bets for a few quarters. Sometimes sector rotation happens like with pharma or real estate. So price moves even further up after the results, because the profitability will continue.
So a lot of moving parts of investing present with trading too, as we are taking delivery.
If you figure something out to track this. Let me know please 