Daily Market News - 14th Oct 2021

Earnings Season

Ok, hand up.

How many of you have bought a company in the hours leading up to earnings because of your gut feelings or your “fundamental insight” only to see the company report stellar blow out earnings, they beat every metric you can think of…. only for the stock to plummet 20% overnight.

Confession time, it’s happened to me too many times to count.

It’s why I advocate a very rules based approach and I thought in todays note, I’d share 2 very simple strategies that I’ve found to help me sleep easier at night.

There’s no doubt it’s VERY nice to be on the correct side of an earnings report, but lets be candid here… it’s a gamble.

If you want to gamble, go to Vegas.

If you want to navigate earnings and avoid the earnings beatdown, I suggest formulating some kind of rule based approach. Here are my 2 rules. Hope they help.

Rule Number 1 - I will only hold through earnings if my position is at LEAST 10% in profit

This has been a complete game changer for me.

I started implementing this around 5 years ago, and it has saved me on MANY an occasion. To the other side of the coin, I’ve missed out on some epic rips higher, but it’s a balance thing… I find it works for me and my risk tolerance, so you should also take some time to figure out what works for you and your own risk tolerance.

We’re all very different, but I know the impact this rule has had on myself and my members / clients etc, it’s mostly positive and it’s pretty easy to implement.

To clarify, I’m not talking about 10% profit in things like Options, I’m talking about the price of the stock.

Rule Number 2 - I will not take a new position in the 5 days leading up to Earnings

This is quite an easy one for me, as over the years, I’ve observed that the individual names are quite volatile in the lead up to earnings and can fluctuate wildly.

We’ve all likely heard that we can get a “run up into earnings” but I find a lot of the time, they’re followed by an earnings sell off and of course, the, the opposite is also true, we can decline running into earnings and gap up… I take the view it’s a bit of Vegas gamble, so I prefer to watch on the side lines and consider the earnings information and act accordingly.

Why I have these rules

The Earnings Discount is ultimately what I’m looking for. I call it the earnings discount because it’s an approach that considers the earnings information, observes post earnings price action, and what I’m hoping for is a company that reports stellar earnings but Wall St declines the stock… you might call it “manipulation”, I prefer to call it opportunity.

All we’re looking for is price pulling back to strong Technical support levels and you just buy once you see support coming in. It’s that simple. It’s why I call it the Earnings discount. It’s something I keep an eye on and will communicate the opportunities over the coming few weeks to our clients and members.

Our Weekend Premium Analysis went out to members on Saturday with charts for individual names that are setting up nicely.

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