Using Whisper Numbers In Combination With Price And Volume Patterns

Once considered as sensitive information only certain Wall Street analysts were privileged to, whisper numbers have now taken the form of the Internet and can be an effective way to measure the sentiment of a stock.

To begin with, whisper numbers are the unofficial consensus of what a company’s earnings per share will be before the actual numbers are announced. Much like the official analysts’ consensus, whisper numbers serve to be as accurate as possible. Unlike the analysts’ consensus, whisper numbers vary and are derived without standard guidelines.

Essentially, whisper numbers represent a compilation of information screened and processed by the web sites who post them. This process involves proprietary software that supposedly scours Web sites, message boards, financial articles, and submitted tips that could originate from anyone, including the Easter Bunny.

So how accurate are whisper numbers?

A study done by Bloomberg showed that 44% of analysts missed the actual earnings of a stock, while only 21% of the whisper numbers were off. Another study by GetWhispers.com concluded that their whisper numbers were able to predict actual earnings 3.4 times better than analysts. Below are some recent examples of whisper number reporting.

All that’s great but how can I make money from whisper numbers?

Whisper numbers should not be relied upon any more than the official analysts' consensus. Analysts' reports are often conservative because they cater to investors with buy-and-hold strategies. Whisper numbers are designed to denote a more accurate prediction and can be used to act as a barometer for the sentiment of a stock. I refer to the data like any other indicator, chart pattern or news that might affect my trade.

Due to their increase in popularity, whisper numbers don’t have the edge on a stock that they used to. In the heyday of the technology boom, a stock that exceeded its analyst' consensus, yet fell short of its whisper number, was said to have disappointed, thus punishing the share price. Now that agencies such as Bloomberg report on whispers as credible evidence, the advantage of using the numbers to get a head start on the herd may be tapering off. With the Nasdaq in solid bear territory, it will be interesting to see how the new numbers come in for this earnings season.

When I’m looking to trade in or out of a stock near earnings season, I will go to five different whisper sources on the Internet to get a heads up of what might be coming. The numbers are published a few weeks before the actual earnings are announced. I have found using various sources a great way to get a lead on a company poised to move on news of a positive earnings report.

It happened with Openwave (OPWV) last January when the analysts had the earnings in negative territory and the company actually reported .09 cents per share. One of my whisper sources had the stock in positive territory at .03 cents per share, and it gave me early warning for a surprise. In keeping with the philosophy that whisper numbers are not any kind of buy signal in and of themselves, the proper modus operandi would be to watch the price action in the stock for signs of a reversal. In this case, OPWV reversed with a vengeance into a rally that gained over 100% in one month.

Most recently, Red Hat (RHAT) surprised with 0.0 earnings while the official consensus was -.01. The stock broke its downtrend and gaped up the next day into a pullback that was 30% off its pre-earning's close. If you have the risk tolerance, one way to trade this would have been to find out exactly what day that earnings announcement was to take place and then place a buy stop a quarter of a point or so above the close of the day before. Again -- not a strategy for the fainthearted! Again, weeks before, one of my whisper sources had accurately predicted this earnings surprise.

In this example with Broadcom (BRCM), the stock was in a downtrend, but then experienced an increase in buying pressure a few weeks before the earnings announcement. There were whisper numbers suggesting they would top analysts’ expectations. Look at the outside day on a sharp increase in volume that occurred shortly after the whisper numbers were released. Outside days (higher high and lower lower than the previous day) often accompany changes in trend. But as you can see, the stock entered a downtrend once the actual earnings were released. Wall Street obviously wasn’t impressed when the company topped earnings. I'm not going to try and account for a subtle increase in volume from the time the whispers were released to the time of the announcement, but I could argue that the whisper numbers had an influence on the run-up in the weeks before the announcement. Their popularity is increasing.

Again, because whisper numbers shouldn’t be the only piece of information used to make a decision, I will crosscheck a potential breakout or breakdown with chart patterns and indicators to get a picture of what could happen when the earnings report is released. The numbers also serve to help me dodge potential surprises on the negative side. With the ever-changing world of the Internet and the stock market, it will be interesting to see how this little measure of sentiment holds up.

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