April 28 2015
1Q15 – Earnings Season – Trading Game Plan
40% or 200 S&P 500 companies have reported. The Divergence between Revenues and Earnings remains.
70.5% of companies have reported positive earnings surprises of 4.7% (so not quit as high as last week).
44.5% of companies have reported positive revenue surprises. The 59.5% reporting negative surprises have reported revenues -1.3% versus expectations (versus – 1.2% last week).
Trading Earning – One Approach
Stock prices (as per those wonderful men and women who sift through the fine sand of statement notes and footnotes) generally like confluence between the surprises (positive surprise in both earnings and revenues. But this is the first broad brush stroke of the Earnings Game. Many have published articles and white papers.
My preference for all things related to corporate finance is Aswath Damodaran. He wrote an excellent article “Earnings surprises, price reaction and value” which you can read here.
This piece is a bit different from his more quantitative work. This blog explains the Expectations Game, The Annoucement Efffect as well as the rules governing the Companies as well as The street’s analysts in plain simple english. Then to assist you in formulating your Earnings trading plan, he provides two key elements: 1) where the company is in its growth cycle and the elements a trader should define and how the trader will respond to them and 2) which type of game plan fits you best, depending on the way you view equity values and valuation.
So check out Aswath’s approach. At the end of the blog he offers the reader a challenge. Take the challenge and learn more about trading Earnings Seasons.
I’ll be back next week to see how y’all did.