Wall Street likes upside earnings surprises, and the market often rewards companies that deliver them. While positive surprises in earnings are often a good thing, you have to be aware of just what is behind it... Read the full article at Mark Minervini's site.
This is an exercise to help hone your trading skills. Below are charts for three stocks, KIRK, SNDK, and NTGR. Answer the following questions:
1. What were the postive catalysts on the day of earnings?
2. What were the negative catalysts?
3. Why did the stock fail or succeed after the earnings announcement?
You can find links to resources here:
Stocks with earnings surprise >= 50 since April 1, 2010, within 20% of 6 month high.
ACAS, American Capital Ltd
ACTG, Acacia Research Acacia Tech
ADCT, ADC Telecommunications Inc
AMCC, Applied Micro Circuits
APKT, Acme Packet Inc
ARAY, Accuray Incorporated
ARM, Arvinmeritor Inc
ATML, Atmel Corp
AXTI, Axt Inc
BEXP, Brigham Exploration Co
BWA, Borg Warner Inc
BWS, Brown Shoe Co Inc
CMI, Cummins Inc
COF, Capital One Financial Cp
COHR, Coherent Inc
CROX, Crocs Inc
CRS, Carpenter Technol Corp
CSA, Cogdell Spencer Inc
DECK, Deckers Outdoor Corp
DGI, Digitalglobe Inc
DGIT, Dg Fastchannel Inc
DIVX, Divx Inc
DTG, Dollar Thrifty Auto Grp
ENH, Endurance Specialty Holdings
ENZN, Enzon Pharmaceuticals Inc
EXH, Exterran Holdings
H, Hyatt Hotels Corporation
HAS, Hasbro Inc
HL, Hecla Mining Co
HMIN, Home Inns and Hotels Management
HOT, Starwood Hotels & Resorts Worldwide Inc
IFSIA, Interface Inc Cl A
IPXL, Impax Laboratories Inc
IRBT, iRobot Corp
LLNW, Limelight Network Inc
LQDT, Liquidity Services
LRN, K12 Inc.
LTXC, Ltx Credence Corp
LVS, Las Vegas Sands
LXK, Lexmark International
MANH, Manhattan Associates Inc
MGA, Magna Internat Inc
MOH, Molina Healthcare Inc
MRO, Marathon Oil Group
MU, Micron Technology Inc
NANO, Nanometrics Inc
NAV, Navistar Intl Corp
NENG, Network Engines Inc
NPSP, Nps Pharmaceuticals Inc
NZ, Netezza Corporation
OC, Owens Corning
OIIM, O2Micro International Ltd
PPO, Polypore International Inc.
PQ, Petroquest Energy Inc
QLTI, Qlt Inc
RBCN, Rubicon Technology` Inc. Commo
RGR, Sturm Ruger & Co Inc
RST, Rosetta Stone Incorporated
SAM, Boston Beer Co
SAPE, Sapient Corporation
SCOR, Comscore Inc
SIMO, Silicon Motion Technology Corp
SKS, Saks Holdings Inc
SM, Saint Mary Land & Explor
SNDK, Sandisk Corp
TCB, Tcf Financial Corp
TEN, Tenneco Inc
TK, Teekay Corp
TRW, Trw Automotive Hldgs Corp
UAM, Universal American Corp
VLCM, Volcom Inc
WBC, Wabco Holdings
WHR, Whirlpool Corp
WSII, Waste Services Inc
WYNN, Wynn Resorts Ltd
Investopedia defines Compounding - The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.
When you lay everything out on the table, this is your final goal with investing - get your money working for you.
I have many friends who took this concept and applied it to their careers to make them very successful at what they do. Realtors use it to grow their network, in return accruing listings at a faster rate over time. The more listings they have, the more sales they generate. Some of my friends in sales are making bank on sales networks they’ve spent years building and cultivating.
Coming from a programming background, one of my biggest challenges was to figure out how I could apply this concept to my career and skill set. The challenge faced by most programmers, and definitely any programmer that sticks with it for a decade or more, is the limited life for any given language. We are constantly barraged with the next great thing, we get out there and take the courses, read the books only to find in a few years there’s a better way to do task X. In short, reaching that mastery experience for any given language is challenging.
This is where the stock market comes in. Concepts that have worked 50 years ago, work today. Knowledge gained can be applied on a daily basis, now and for the rest of your life. As you accrue more knowledge and more experience, this momentum builds on itself making you a better trader and in the end compounding your assets.
Taking this a step further, focusing on earnings related trades, such as StockBee’s Episodic pivot or the Earnings thrust allows you to “compound” the knowledge gained on the day of earnings for a later trade when the stock pulls back and then continues forward.
Let’s break this down into the individual trades and see how you can apply this concept. We will continue to use the NFLX example discussed in earlier posts. Here is the chart for reference:
First, NFLX announces earnings and provides upward guidance on Jan 27, 2010. Being the diligent investor that you are, you review the earnings release and take note of the fact they had a 62% increase in EPS, 25% in sales. NFLX also raised guidance for 2010.
Next, the market responds overwhelmingly positive on the day of earnings with a huge volume and price surge. Wait a minute, at some point we had a discussion over at the Stockbee site about the fact that larger float stocks tend to pullback after announcements so you sit and wait a few days before entering.
In early April, NFLX signals a break-out after moving sidways for five days. At this point you already know several things:
- The stock had great earnings back in January,
- They also raised guidance,
- The stock has been steadily moving up since then,
- The sector is in the top 5 performing sectors at the moment,
- The market is currently in an uptrend, (Beginning of April it was)
Compare this to trading diverging strategies where you would have to do a lot more grunt work for each trade to get to the ultimate decision of buy or pass. Most, if not all of your leg work was done up front so the decision process can occur much faster.
In summary, a good way to compound your knowledge is to look for strategies that pair together. This allows you to make quicker decisions with more confidence when it’s time to push the buy button.
The following stocks are up in pre-market and had an earnings surprise greater than 25%.
DFS - Discover Financial Services 200% Surprise
Click the link "Watchlist: Today's Earnings" under Tools to get more information.
These stocks can make big moves. Check it out.
I've added two new options for exporting watch list data into Telechart or a CSV file for most other applications. Next to the Watch list, you will see Export: Telechart | CSV. Just click the appropriate text to export the data.
2. Top 50 List: Price Momentum and Short Interest
The following stocks are up in pre-market and had an earnings surprise greater than 25%.
WGO Winnebago Industries, Inc. 600% Surprise
PIR Pier 1 Imports, Inc. 450% Suprise
SGM Sutter Gold Mining Inc. 34% Suprise
Click the link "Watchlist: Today's Earnings" under Tools to get more information.
Typically, I ask "What type of strategy are you using to manage your money?" And the average response is "Well, I've been meaning to get to that, I have some books but just haven't had the time."
For most of us, the money sitting in our 401Ks and retirement accounts is the largest chunk of cash we could put to work. But, for some reason since it's not really tangible...just a number sitting out there on some website...we tend ignore it. So, I want you to take that number and visualize it in dollar bills...then visualize that pile of cash sitting in your closet. How much attention would you give it then? Would you go in and count it every night? What measures would you take to protect it?
Many people tend to follow the type of cycle below. In at the end, out at the beginning of a move.
How I invests in our retirement accounts
401k investment question
A Yahoo Finance shortcut for 401k mutual fund ranking
401k funds relative ranking calculation spreadsheet
Making a move in long term retirement accounts
[updated July 12, 2010]
Step 1. Click the option "Telechart" found next to Export text for the specific watch list.
Step 3: In Telechart, go to the WatchList menu and select “Import Symbols From List.” Be sure you are in an empty or new watchlist.
Step 4: Select the file you saved earlier.
Once the symbols are imported. You can then sort by 30 Day growth, lowest to highest. If you are a Stockbee member, you can apply the top 25 breakout method to narrow the list down.
We made a few optimizations to the Top 50 algorithms this weekend. Enjoy.
Top 50 Enhancements
Top 5 - 10 Select Lists , aka Daily recommendations
Two new Top 50 Lists...
Market Breadth Indicators in Stockfinder
Earnings Thrusts scans, Stock Finder, stockcharts.com
In this segment, I want to cover the various sites available that provide quality earnings information.
In Play - Short summaries on earnings news and guidance.
Earnings Whispers - Great resource....when you actually get the emails.
Street Insider - Earnings Information
RTT News - Positive Annoucements
NASDAQ - Stocks moving in pre-market and after-hours on higher volume. You can find some of the lesser known stocks moving here and then look up the news using Google finance.
After Hours Movers
Pre Market Movers
FINVIZ - Stocks with Earnings Date today. You can modify it for tomorrow, Yesterday, Next 5 days etc.
Investor's Business Daily - This is the one paid service worth the money.
---READER RECOMMENDED SITES---
Suggested By Tiago
http://www.earnings.com/highlight.asp?client=cb (Very good one!)
Finally, by clicking the link "Watchlist: Today's Earnings" found to the right under the Tools section, you can view my earnings research. I try to update this information twice a day; before the market opens and in the evening.
In the next segment, I will discuss scans for finding earnings thrusts as well as stops, entries and exits.
--Disclaimer: I do not receive any compensation from the sites, books, or other resources mentioned on this site. --
NAV Navistar International Corporation 940% Surprise
-- I expected this to move pretty big this morning. It's flat so I guess the market was underwelmed.
You can view all earnings data by clicking the link "Watchlist: Today's Earnings" found to the right under the Tools section. I normally update this a few hours after the market closes and about 30 minutes before the open.
The 30DayGrowth, Percent change and VSrg columns update every two minutes so you can keep an eye on these during the day.
When we enter correction phases of the market, I try to keep busy building new screens and catch up on my reading. It's a good way to learn new concepts and keep out of trouble. I just wrapped up The Complete Guide to Market Breadth Indicators by Greg Morris, and after the past few days I felt like this would be a good topic to discuss.
Draw downs are the bane of any swing trader's existence. How many times have you spent weeks or months building up your account only to have it quickly snatched away when the market turns to the downside? I know I've been there...many times. It wasn't until I finally had a clear understanding of how these indicators worked that I started seeing significant long term returns in my accounts.
Market breadth indicators measure the underlying currents of the market for any given period, quantifying the underlying strength or weakness in the current move. A model will consist of one or many market breadth indicators to signal a entry or exit condition.
---Disclaimer: I do not receive any compensation from the sites, books, or other resources mentioned on this site. I am currently an active member of Stockbee.---
Currently, I use Stockbee's Market Monitor designed by Pradeep Bonde for my entry and exit signals. Following the Market Monitor I went into cash on 4/28 and have been SOH (Sitting On my Hands) for the past few weeks. Along with many of the other members, we have been waiting for the entry signal which has yet to happen. Last week 5/27, the secondary indicator signaled positive, but we did not get a confirmation on the primary signal so many members remained in cash. A few of us took some smaller teaser positions only to get smack down on Friday.
I have been using the Market Monitor for over three years now and have successfully avoided all of the large drops we have experienced since 2007. Additionally, I used the Market Monitor signals to manage both my trading and retirement accounts. Back in March 2009, I moved all of my accounts back into the market and pretty much doubled them over the next year.
A detailed description on how the Market Monitor works can be found at:
Investor's Business Daily provides the "Big Picture" which offers a proprietary system where they notify readers if the market is in a confirmed uptrend, under pressure, or market in correction. This excerpt from their site details the concept of "Follow-Through Day"
System developed by William J. O'Neil to identify an important change in general market direction from a definite downtrend to a new uptrend. From the beginning of any attempted rally during a definite downtrend, a 'follow-through' day is identified when the index closes up 1.7% or more for the day on a significant increase in volume from the day before. The first two or three days of a rally are normally disregarded as it has not yet proven it will succeed and 'follow-through' with power and conviction. 'Follow-through' days therefore generally occur the fourth through seventh day of the attempted rally. They serve as a confirmation that the market has really changed direction and is in a new uptrend
Mark Minervini has taken the IBD model and modified it with some of his own custom components. He normally posts weekly updates accessible to the public discussing his market timing model.
So far, I have been very happy with the Stockbee Market Monitor. I have spent the past three years mastering it and would rather focus my energy on building better watch lists than trying to reinvent the wheel. Over the next few weeks, I will try to script out some of the indicators from the book and make them available via StockFinder.
In summary, if you want to be successful in the market, you need to start with a mechanism to tell you when to be in and when to be out. I highly recommend reviewing any/all of these sites to get a better understanding of the timing models available out there. You can use these models for your trading accounts and also your retirement accounts.
GIII G-III Apparel Group, Ltd. announced an earnings surprise of 63%.
Raises guidance $2.20-2.30 vs. $2.17
30DayChg - 30 Day growth for this stock. If it is under 10% the cell will appear in green. Above 10% red. When swing trading momentum, it is critical that you buy the stock coming off of weakness versus the middle or even worse, the end of a move. The closer to support your purchase, the less risk you have on the table. I should clarify you are buying weakness off of a strong prior uptrend. We are not bottom feeding!
cPct - Today's percent change. Again, we highlight the cell if the stock is up 2% or more for the day. This combined with the volume surge column will give you a good idea that the stock might be making a continuation thrust. A Continuation Thrust means the stock has an upward trajectory but has recently taken some time to consolidate and is now continuing with the move.
VSrg - This column tells you the change in volume over the average volume for a given period. The more volume, the more interest there is in the stock.
OK, let's be very clear - because all of these columns are flagged in green DOES NOT mean this is necessarily a buy signal. If it were only that simple, right! What this does tell you is there is interest in the stock, and this stock has been historically outperforming a good majority of all other stocks.
At this point, you can click the "Chart" link to view the chart over at stockcharts.com. I think a monthly subscription runs around $14.00 per month, fairly reasonable for what you get. (I do not receive any fees from stockcharts.com or any other service that I happen to mention on this site).
[edit June 6, 2010 - another reader suggest FinViz.com, FreeStockCharts.com for free charting software. Thanks for the recommendation.]
In the case of NFLX, you get to see the entire set of trades. First it starts out with an Earnings Thrust on Jan. 27, 2010 "Netflix, Inc. Issues Q2 2010 Guidance In Line With Analysts' Estimates; Raises FY 2010 Guidance". It follows through on the earnings thrust and rallies for 7 weeks before moving sideways for a week. Then on April 5th, NFLX displays a Continuation Thrust with a new 5 day high on above average volume after a sideways move. I'm not going to get into stops because that is a very long topic in itself but if we were using an pSAR stop, you would have been out at a close price of 85.31 on April 16.
If you're interested in the different types of chart patterns; How Charts Can Help You in the Stock Market by William L. Jiler is a good reference. Chapter 6: Line and Saucer Formations and Chapter 10 Continuation Patterns seem to be the sections I often refer back to read.
Trading Tools - When you get to the point where you feel comfortable in the market and want to throw some money at your tools, you have several options out there: Telechart, StockFinder, Tradestation, Ninja Trader, Think or Swim etc. BEWARE - These tools while handy can also add to your noise level as you constantly mess with different indicators!
Recently, I have started looking at StockFinder since it uses an extension of the .NET programming language which I have intimate knowledge. So, if we take the same setup as before NFLX and drop that in StockFinder you get the following result:
Stockfinder gives you some handy options where you can drag and drop or script out criteria (similar to PCF scans in Telechart). The arrows and orange highlighted bars match the criteria in my scan so they are automatically flagged on the chart.
To get the watchlist from our Google spreadsheet to StockFinder, simply create a new Watchlist in stockfinder named "Top Stocks with Price and Sector Momentum". Next select all the cells in the Symbol column in the Google Spreadsheet and Copy them (Ctrl + C). Finally, right click in the StockFinder watchlist pane and select "Paste" from the menu. Voila! You can now monitor the stocks using Stock Finder. By clicking the PF_BreakOut scan in the chart pane, all stocks in the top 50 watchlist will be scanned for any matching the criteria.
You should be able to download by default layout in StockFinder by going to "Share" in the top menu. Then select "Browse other users shared items" and then scroll down by name "PatientFisherman_Default". The password is "momentum". This is a work in progress so the layout will be influx for an indefinite amount of time.
In summary, you can use our Watchlists to narrow your stocks down to the best stocks with highest momentum weighted against sector and value. Then, you can use the Google spreadsheets to actively find stocks signaling a Continuation Thrust. Finally, you can review the stock's setup by using tools such as stockcharts.com or stockfinder to make a final decision.
Hwang, Chuan-Yang and George, Thomas J., The 52-Week High and Momentum Investing. Journal of Finance, Vol. 59, No. 5, pp. 2145-2176. Available at SSRN: http://ssrn.com/abstract=1104491
Chen, Hong-Yi, Chen, Sheng-Syan, Hsin, Chin-Wen and Lee, Cheng-Few, Price, Earnings, and Revenue Momentum Strategies (March 15, 2010). Available at SSRN: http://ssrn.com/abstract=1571883
Smarter INvesting in Any Economy: The Definitive Guide to RElative Strength Investing - Michael J. Carr
How Charts Can Help You in the Stock Market by William L. Jiler
Few things I'm working on:
1. Earnings Thrust part 2
2. What are you waiting for?
3. Gold medal stocks
In collaboration with Pradeep Bonde at Stockbee.biz we have created two new watch lists that update daily. These watchlists rank stocks using research based characteristics that push stocks to higher prices.
1. Top Stocks with Price and Sector Momentum
The best performing stocks in the best sectors.
2. Top Stocks with Price Momentum and Value
The best performing stocks with the best value.
ZQK Quiksilver, Inc. 267% Surprise Up 12.96% in After Hours
JRJC China Finance Online Co. (ADR) 250% Surprise up 10.88% in After Hours
CMTL Comtech Telecomm. Corp. 40% Surprise up 4% in After Hours
JOYG Joy Global Inc.
1.15 vs 0.77 49% Surprise up 7.42% in PreMarket trading.
1. Percent Surprise
5. Consolidation or Prior Weakness
How much thrust does this stock have?
Percent Surprise will give you the biggest bang for your buck. You should look for stocks with 100% surprise or greater. Significant upward guidance will also add to the trajectory this stock. If you review the historical examples from the past 6 months you can see the earnings information at the time of their earnings thrust.
Volume will tell you how much thrust the stock initially has on the day of the earnings announcement. A volume surge greater than 2x average volume by 9am is normally a good indicator that the market liked the news. Again the greater the volume; the greater the initial thrust is from the day of the announcement.
Price is a confirmation that the market likes the news and indeed the stock is gaining momentum. Look for price to make a monthly high after a tight consolidation or minor weakness and approaching a 6 month high. You can think of over head resistance, as gravity pushing down on the stock as it is trying to accelerate to new highs. The more levels it has to push through to get to a new high the smaller the move.
Float is the number of shares of a security that are outstanding and available for trading by the public. This tells you how heavy this puppy is. The larger the float the more thrust this stock will need to get moving. Preferably select the stock with the lowest float.
Finally, look for flat bases, months of neglect where the stock has not been doing much. Try to avoid stocks that have deep cups or v-shaped looking patterns when entering the trade. Again, review the examples posted on the site to get an idea of what these look like.
In my next post, I will cover tools to help you spot these stocks.
For more information see:
Balakrishnan, Karthik, Bartov, Eli and Faurel, Lucile, Post Loss/Profit Announcement Drift (November 20, 2009). Available at SSRN: http://ssrn.com/abstract=1510321