How to deal with earnings report?

Heisenberg_lee

Hey guys:
Last week, I bought a stock(Symbol MHLD) and hold for about one week. Everything goes well. But when the market opens at Aug 5. The stock seems to be like a waterfall. My stop loss order has been executed at a very low price level.
So I checked, this stock has released its earnings report at Aug 4. I think maybe it is the reason. Am I right? So, I felt a little confused. How you guys deal with earnings report? Hold your position or try to stay out of the game when the earnings day approaching? On the other hand, how you guys check the earnings report date? Is there a website or something?

Kevo

Know in advance when the earnings report comes out and make sure to exit the position a day or two earlier. ER's represent unknown information. Prices adjust instantly when that information becomes public. There is no way to take advantage of instant change of price. It's too fast. After prices adjust instantly, market participants now see the new price as what the stock is worth. In a very few cases, you can tell what might happen, but you have to have a lot of experience with ER's. It's usually not worth it though.

Kevo

Your broker website should tell you earning report dates for every symbol.

From a behavioral point of view, price may rise due to anticipation, then once the ER is released, the stock lets out a "sigh of relief".

markd

In addition to Kevo's suggestions:

For earnings announcements due on a particular day, try Zacks

zacks.com/earnings/earnings-calendar?date=1438668000&event_type=1

To research a particular issue, try Yahoo Finance - enter the symbol in the quote box, then click on "Company Events" on the left side menu.

In retrospect, there were some hints the stock wasn't strong, in spite of a very positive looking chart. On the weekly, recent up bars after the breakout to the latest highs have been on only modest volume and the bars are weak looking - wicks/tails/small bodies/less range. When the stock is healthy, increasing prices should attract more volume and make larger bars with longer bodies. On the daily chart, on August 3 the stock did not pop in spite of higher volume - so that meant that higher prices were attracting sellers instead of buyers. That is a clue that there is bad news coming. If you had known the earnings report was due, I'm sure you would have put 2+2 together. But even not knowing that, once you have practice interpreting how price and volume interact, you would be wary of entering, or you would reduce or exit your position.

If you google "Wyckoff pdf", you will find his original course that explains how to interpret price and volume. It's quite a bit of work to get through it, but its very enlightening.

markd

Another couple of things to note about this stock:

Although it is in an out performing sector - Finance (XLF), and is out-performing it's industry, Reinsurance ($DJUSIU), the industry itself is under-performing it's sector. You can see this if you select "Price" from the Indicator box and enter "$DJUSIU:XLF"; the line has been sloping down for some time.

Also, if you do a weekly chart for $DJUSIU you will see it seems to be starting a down trend. If you overlay the chart with MHLD (select Price, then type in MHLD, then select Behind Price), you will see that MHLD is a late comer to the industry's rally last year. That implies it's a laggard stock in the industry, so it can't withstand the general industry trend for long.

While stocks like this can produce good trades, when there are several headwinds against it, you have to take weakness more seriously than if the stock was a true leader in a vibrant, newly emerging up trend for the general market, sector and industry (out-performing in an industry out-performing a sector out-performing the market).

Kevo

I think the reason why MHLD would have small Candlestick bodies and wicks is because price is less than 20. It's also small cap.

gord

In addition to the previous comments, I would add that Zacks and Yahoo are good general guides. However they are often a few days off or late in their updates. I find the best place is the company website, "BUT" they have also been know to delay the release for a few days or even move it up, sometimes even releasing it during the trading day.

With respect to stop loss orders, there is no law requiring someone to buy your stock at your stop loss price, if there are no buyers you may be filled at a very low price, so be careful. Many stop losses are activated at a trade or a bid at that price and then become a market order to be filled at any price. You can use a stop loss "limit order", ( set minimum price), but often the price falls below your minimum before you are filled and then you may be filled as the price rises back up. Check your broker and exchange for details on order processing, they are all a little different !!!

Also check the stocks history. If I look at a one year chart of MHLD I can see several one day price swings, both up on down, in the similar percent range so I'm not surprised, this one just happened to be to the downside. It's not heavily traded and a 5% price swing in a day is quite usual.

petero1298

"Guaranteed Stop Loss"
----------------------
Some brokers do offer "guaranteed stop loss".
Meaning for a small fee, you are guaranteed that your stop loss price will be executed even if the price gaps below your "guaranteed" stop loss price.

I think they do this by simultaneously executing an arbitrage trade when you place a "guaranteed" stop loss price. Hence the fee they charge you.
Also if you were to subsequently cancel your "guaranteed" stop loss, you will also be charged. I think it's because the broker also has to unwind his original arbitrage.

Cheers ... Peter

markd

Hi @Kevo, it's true that the absolute range will be wider for higher priced stocks. But candlestick shapes are determined by the balance between buyers and sellers, whatever the price. If buyers or sellers dominate a session, you get a long body, whether the price is in single digits or triple digits. If dominance goes back and forth, you get wicks and tails. If you get much smaller range, buyers and sellers were in close balance. So, the changes in candlestick shapes over time tell you who's gaining and losing strength.

Heisenberg_lee

Than you guys, @markd @Kevo @petero1298 @gord . You answers are really helpful for me!

morganj71

It would be nice to be able to have them here on the Stockcharts like the dividends.