The market’s reaction to profits typically reveals more than the earnings itself. If earnings look good but the price falls, investors may be worried about growth sustainability, growing expenses, or other concerns.
A strong stock reaction to weaker-than-expected data might signal the company’s future is good despite the setback.
IBD’s Earnings Calendar includes earnings previews, due dates, Investing Action Plans, and stocks near buy zones.
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With the stock market back in an uptrend after Oct. 14’s follow-through day, investors should purchase equities breaking out past their buy prices in big volume.
What if results occur shortly following a stock’s breakout?
There’s no hard-and-fast rule, but there are a few ways to reduce risk before earnings.
On a breakout, buy half the usual amount of shares. If the stock reacts well to earnings, you can complete the trade with a cheaper average cost than if you started it post-earnings. If the stock falls, you can sell it for a lower loss.
Use IBD’s profits options technique. IBD established an earnings-risk-reducing options approach in 2016. The technique allows investors to profit from a stock’s earnings-related move while limiting risk. If the price is suitable, weekly or monthly choices can be employed.
Gaps can lead to bigger gains.
Investors should attentively examine leading equities when they report profits in the coming weeks. Positive results might cause a gap. When buying demand exceeds supply, share prices soar.
Lululemon shares broke away on March 28, 2018 (LULU). After solid profits and sales, shares jumped 9 percent on heavy volume. The stock traded at 83.41 and finished at 5 percent buy. Next day, the stock extended.
Lululemon grew 97% in seven months until its next base creation.
If a stock gaps up so sharply that it doesn’t trade within 5% of the right purchase mark, wait for the first five-minute high price to emerge on an intraday five-minute chart. As the stock passes that level, buy as near as possible.
AMD is a buy before earnings.
AMD came out over a double bottom’s 114.59 purchase mark Monday and is in the 5 percent buy region, which tops out at 120.32. The stock’s RS line is bullishly high, indicating its market leadership. AMD’s IBD Composite Rating is 99, per IBD Stock Checkup.
Not yet. Tuesday’s earnings report is due. Analysts predict 66 cents per share in profits on $4.1 billion in sales. This will determine the breakout’s success.
Scott Lehtonen tweets @IBD SLehtonen about growth stocks and the Dow.