Wednesday, August 5, 2015

How To Take Advantage of Earnings Season To Find Big Winners

One of the best way to take advantage of the earnings season is to keep track of the stocks that reacted well immediately after their earnings report.  The stocks immediate reaction should be one that can't be construe any other way than the positive.  Setting a minimum gap up requirement of say 4% or 6% will narrow down your universe dramatically and show you only the stocks that might fall under P.E.A.D.

“Post Earnings Announcement Drift (PEAD) is the tendency for a stock’s cumulative abnormal returns to drift in the direction of an earnings surprise for several weeks (even several months) following an earnings announcement. On May 6, 2015 we highlighted 3 candidates that that fell under the PEAD definition; $AMZN $416.89, $DNKN $50.48, $GPRO $48.10.  All 3 reacted extremely well immediately after reporting their earnings, but more importantly we allowed these stocks to digest the initial move up and then took advantage after they digested the initial thrust, which is key.  You want to get involved when these stocks provide a decent risk reward opportunity.  And if the stock has been neglected for a long time then the Post Earnings Announcement Drift will be more powerful.  Take a look at this write up in which we highlighted $MDR at $3.16, a neglected out of favor stock that surprised the street with a huge earnings beat, the stock basically doubled in 2 months, click.
Here are the steps to find these stocks;

  1. Go to
  2. Click on SCREENER
  3. Put in these filters; Earnings date previous 5 days, average volume >100k, Price >$2, Price above 200 day moving average, and price above 50 day moving average. This will give you 216 names that have reported in the last 5 days.  
  4. What you want to do now is click on charts and jot down the names that had a recent gap up, for example $AAOI, $ABMD.  
  5. You then want to keep track of these stocks and wait for them to set up properly, in the meantime you can also read the earnings press release to see if you really have something special like $MDR.
  6.  Rinse and repeat daily.
One recent name that stands out to me is $N.   @Zortrades

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