Earnings This Week

It’s time to shake up the market and kick off what should be a very interesting earnings season. There is mixed optimism in the air, from what I can tell, but no one is betting the farm that it will be rosy. Did the Japanese disaster take a bight out of profits? Is the consumer really spending? At 9.2% unemployment, it’s hard to say if companies were able to keep revenues and profit margins high during the last quarter. Commodity prices generally came down, but a lot of the reporting period saw high energy and commodity prices in general.. In other words, it’s hard to say.

The technicals will matter a little less right now as company news will shape the sector it plays in more than anything else. Watch the leaders in each sector for their stories.. most importantly, their guidance. The market seems more concerned with the prospects of ever getting out of this recession feeling economy (forward looking) than how a company performed in the past.

This week, I will focus my Swing Watch List on stocks around leaders that are reporting.. For example, YUM reports on 7/13, so I’ll have a watch list of restaurant stocks as sympathy plays. Of course, we can still play the reporting companies themselves. One thing I look for from companies reporting in pre-market is the volume interest. Sure, you may see a stock up 15% in pre-market thanks to good earnings, but if it is on the backs of relatively low pre-market volume for that stock, then the opening bell gap-up may not have the energy to run… so, I wait and watch. Conversely, if a pre-market report moves a stock higher on strong pre-market interest, then the opening gap is less likely to fade. In this case, I’ll watch it for a while and let it ‘settle’ and then look for an entry to swing long.. We’ll have to see continued buying strength throughout the day for this swing to make sense. Otherwise, it might be a day-trade candidate or it will be like a lot of earnings reports – gap-up, sit, fade, sit… If the earnings were good with good forward guidance, often times a good swing shows up a day, or two, later when the ‘traders’ are out of their positions. You then see the stock drift to new highs.

One thing I will NOT do this week is hold too many positions. Even if you hold a stock that is outside of the sectors reporting the next day, you can get smacked if ‘important’ stocks show slowing signs. Let’s say Google says the future looks dim, that will hurt a lot more than just Google’s stocks.

I’ll also not hold any stocks into their earnings. Tomorrow, we kick off the season with AA after hours.. However, you WON’T see me picking any up prior to the announcement. That’s gambling in my book. It may be a fun after hours scalp, but takes nimble fingers and nerves of steel to play in that environment.

More to come throughout the week. Enjoy earnings season, don’t try to anticipate it.

From IBD: