A Quarterly Earnings Reports Manual.By Kenneth@Xtrade - on July 29, 2019
A Quarterly Earnings Reports Manual. It sometimes becomes cloudy with the right information however not knowing how to apply them. This quasi-manual taken from one of our webinars hopes to shed some light on how anyone could approach and survive the Quarterly earnings season.
- Preface/ Background
- What are the Quarterly Earnings Report?
- Quarterly Earnings Reports: Are Fiscal reports filed by public companies to report their performance. In the report the companies disclose items such as net income, earning per share, net sale, and earnings from continuing operations. The reports are published at the end of each quarter. Most companies publish their reports in January, April, July, and October.
- How does the Earnings Season affect stocks and the equity market?
- The predictions made on the earnings report by Wall Street’s analysts tend to drive stock price action around the earnings release dates. Analysts forecast the amount of revenue and profit per share that each company is likely to report. The consensus earnings estimate is the average of analyst predictions for a specific company for the quarterly earnings period.
- During earnings season, traders and investors focus on how close the reported earnings match the consensus estimates. The earnings calendar lists when each company is going to release its quarterly earnings in the Press. Traders focus on different stocks as the release dates approach.
- The Lingo / Jargon
- A company that exceeds the analysts (or “the street” as it is often referred to) is said to “beat” or “hit” expectations. A company that falls short of expectations is said to have “missed” expectations.
- Earnings Reports in the US are published either “pre-market” (before the beginning of the trading day) or “after hours” (after the market closes), for the sole reason of avoiding unfair advantage of inside-trading and fast-reacting algorithms, and excessive intra-day fluctuation (also referred as volatility).
- What do we need to look for when trading on the Earnings Reports?
- We need to assess the analysts’ forecast, the deviation between the different analysts forecast, the forecast compared to recently published reports and the market general sentiment regarding the specific company. Sometimes we might find that trading against the consensus is a profitable strategy, in case the “street” tends to be super-optimistic/pessimistic regarding a specific company.
- We need to do our homework and come with our own assessment regarding the outcome. Ahead of the release of the Earnings Report, we need to gather data and do our own analysis (not to the depth of those at Wall Street’s Analysts, but enough to have a view on the outcome)
- Let’s look at some examples of the market reaction to Earnings Report
- Earnings Examples
- How to trade on Earnings Report?
- As the reports come out when the market is closed, trading based on the report means that one would need to trade either weekly option or any option that expires after the reports are published.
- It might be a good strategy to trade a calendar spread, meaning that you would place a call/put on the short-dated option and buy the other side on a long-dated option (weekly/long term). This way you would be able to capitalize on the knee-jerk reaction post-report.
- As there is a fair degree of uncertainty regarding the results of the reports, don’t put a significant portion of your capital into a single trade.
This week the markets will be reacting to a deluge of earnings reports as well as the Fed rate decision and another US-China Trade meeting in Shanghai. Meanwhile, Brexit-growing pains hit another nerve.
In times of gross uncertainty or alarms to impending geo-politics driving oil prices and global stocks, market participants will continue to remain close to the safe havens.
- The Cryptocurrencies.
It remains to be seen if investors will opt to use some of the cryptocurrencies as hedging tools and thus given them a bit of safe-haven status. What this means is volatility is abounding. The BTC/USD currently trading between 9,101.4 – 9,738.3 may easily break out to the upside. Some analysts are beginning to predict seeing The BTC climb up back nearly the 20k
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