TRADING DURING EARNINGS SEASON: TOP TIPS

Earnings season can be an influential driver in a trader‘s experience. Make sure you keep up to date on the when the key earnings are released for individual companies in order to proactively plan. Be aware of how bellwether stocks, potential earnings recessions and stock index weightings can influence price movements. Keep a handle on what results are expected for each stock, be mindful of greater potential volatility for either analytical or strategic purposes and understand how one stock’s performance can impact anothers (or an index as a whole).

Following these key tips can help the trader to attempt to weather earnings season and navigate the period more consistently.

We suggest to look through the important things worth to remember:

1) Know the ‘expected’ results

Being cognizant of what is ‘expected’ with regards to the revenue/sales and earnings per share (EPS) figures are important because a company‘s share price reaction can often be determined by the amount by which they beat/miss an aggregate of analysts’ expectations.

2) Stay alert to surprise announcements

Any surprise announcements that coincide with an earnings report can also impact the share price of a company. These may include stock buybacks/share repurchase programs as well as company guidance.

3) Be aware of spillover effects between stocks

An example of spillover impact could be if an investor has a chipmaker stock within their portfolio (EG Dialog Semiconductor), earnings from Apple could have a sizeable impact on the stock. Consequently, it is important to assess related stocks, given that they may reveal the outlook for a sector, thus sparking a possible sector rotation.

4) Consider volatility over the bearing of an expected move

Working out the ‘expected move’ on a directional basis for a stock in reaction to the binary earnings event can be a fraught endeavor. Alternatively, a view taken with volatility in mind instead can prepare investors for significant movement without positioning on the wrong side of the eventual outcome.

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