The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit from Price Declines, Expanded Second Edition

SELLING BEFORE EARNINGS REPORTS

Most fundamental information is reflected in stock prices. I say to fundamental money managers that I feel as though they are working for me. Whenever they buy or sell on the basis of their research, their actions create stock patterns that a technical analyst can recognize. When it comes to fundamental analysis, at the very minimum, you need to know to what industry group a stock belongs. Stocks, like people, move better in groups. It is a good idea to go long stocks in strong groups and sell short stocks in weak ones.

One of the problems with fundamental information is that it flows into the markets in bursts rather than in a steady stream. A chunk of fundamental information can hit a stock and make it leap. This is especially likely to happen when a company releases its earnings reports.

Earnings are important because in the long run they drive stock prices. When you buy a stock, you are in effect paying for future earnings and dividends. This is why many analysts, fund managers, and traders closely watch the earnings of the companies they follow.

Keep in mind that an earnings report rarely comes as a surprise for those who closely track the company. First, there is an entire industry of earnings watchers and forecasters. Pros with a lot of experience tend to be right about their forecasts. Those who pay them for their research usually buy and sell ahead of the actual reports. Stocks seldom jump on earnings reports because the smart bulls ...