Yesterday UIC dropped about 20% after announcing earnings, but it recovered nicely today. Today AIRM also dropped 20% on an earnings announcement. It is quite likely it will also bounce back somewhat tomorrow.
I wonder if anyone has tested whether it may better to avoid earnings announcements on stocks that have performed very well. In other words, sell them a day before the announcement and buy them back a day later. Of course, this strategy would miss some up moves when a company exceeded their earnings numbers beyond expectations.
I couldn’t think of a sell rule to force this behavior. But I wonder if any of the more experienced members have any “gut” feelings whether this strategy might work to increase returns or at least reduce drawdowns.
You can add the sell rule WeeksIntoQ >= 11. That would get you out before the earnings announcment which should come around week 13. You could also experiment with 12 instead of 11.
Or maybe use somenting like:
WeeksIntoQ >= 11 & Close(0)/Close(90) > 3.
That would get you out of stocks that had tripled in the last 90 days (or 90 bars - I forget)
I was thinking about this today after losing 35% on GEMS.
I haven’t done any hard research on this, but it seems to me that more often than not, if a stock has been moving up right before earnings, it will sell off when the news is released. The big guys need liquidity in order to dump their positions, and earnings releases give them that. But if the news is good, the stock will uaually come back after a few days.
Of course, there are exceptions, so it’s a tough call to make. If you have made a decent gain on a stock, it might be worth it to sell a day before earnings. If the news is good, you can always buy it back. There will be a few times when you will miss a gap-up, though.
If a rebalance recommends a stock with earnings announcements due in the near future – 1 or 2 weeks, and the chart and news look good I’ll usually buy it with a tight stop with my broker, usually around 5%. My thinking is that if the news is disappointing it will tank very quickly.
Last week WEX was off $.01 and the price dropped over 20% in one day and guess what — I forgot to execute the stop order.
In general, earnings are announced a few weeks into the new quarter, say 3-5. But this is really unreliable. Also, the historical Reuters data isn’t great when it comes to the timeliness of earnings announcements, although its getting better. As several others have commented, it’s even worse for micro-caps often traded on this forum.
Also, stops are pretty useless when it comes to after market earnings announcements.
So far, this earnings season, I think I have about broken even with respect to earnings winners and losers. I have to trust my backtesting, and since I can’t backtest this, I’m not prone to trade it.
Pitbull has an trading system they call EarningsTrader, which attempts to trade earnings announcements. you might take a look at it.
I have tried applying something similar to “WeeksIntoQ >= 11” but got much lower back test results. Maybe I didn’t play with it enough, but the outcome told me that it is better to hold through earnings and accpet the fact that you’re going to win some and you’re going to lose some, but typically come out ahead.
I’ve also had bad results applying trailing stop losses to my holdings through my broker. In hindsight, I would have lost much less money if I had just waited it out.
I have a BJS Mo Value port that I rebalance daily. This morning’s rebalance said to sell RWC (trailing stop), and to buy LMIA. I looked up LMIA and saw that they were scheduled to release earnings today, so I didn’t buy it this morning. Well, they released at mid-day, and the stock is up 15%. Ugh.
Well as sad as that is I’m glad I’m not the only trader here missing opportunity and getting hammered by earnings reports. That’s 2 major hits I’ve taken since trading with P123. I’m sill up over all so I haven’t lost hope yet.
I’m not used the the swings of micro caps but I’m starting to get the hang of it and with every mistake I make I see a trend to look for next time. The experiance should make me a better trader in the years to come.
I noticed lot of stocks that goes down even if earning annoucement is good (i talk about stock that already made a good gain), but each time i try to backtest that (sell stock that make a good advance one week before earning) i got a bad result