All is not lost and the stock market is not going to zero. Either way, it's a good idea to consider both shorter and longer-term earnings event-driven trading opportunities while your buy and hold portfolio stagnates in this unsettled market environment. Just how can one do that? Let's take a look at some earnings related trading opportunities that just might be ripe for trading next week.
For buy and hold investors, the reaction histories of the stocks reporting and reacting to earnings after-hours is a great predictive tool. Quarter after quarter the reaction after-hours gives investors in the know a great advantage over regular session only traders.
Short-term traders can find some overnight information arbitrage opportunities by taking a similar approach as described for buy and hold investors (going long or short in the extended-hours) buy closing out the position by the close of the regular session following the extended-hours earnings release.
Let's take a close look at the earnings reaction histories of a headliner stock due to report earnings in the after-hours next week:
Google - Play Contrarian
Google (GOOG | Quote | Chart | News | PowerRating) is firm in favoring a narrowing pattern between the sessions in its long-term performance, cutting back its evening direction in next-day trade in nine of the last 14 quarterly reports. In the near-term, the stock also favors a narrowing pattern, three narrowing events in the last four quarters.
In other words, if Google goes down after-hours look to go long the stock at the low end of the after-hours trading range. This area tends to be where the buy interest will support the stock in the following day's regular session. Take a look at the history of earnings reactions both in the after-hours and following regular session to see why.
It's most history, however, is the rare exception to the rule. On January 31st, 2008, the stock sank -6.8% followed by additional weakness the following day to finish the regular session -8.5%.
On Oct. 18, 2007, Google grabbed a gain of 0.9% after topping Q3 expectations. The stock thinned its upside slightly the next day, closing the Oct. 19 regular session up 0.8%.
On July 19, 2007, Google dropped 7.7% in after-hours when the company missed Q2 EPS estimates but beat on sales. Shares cut their losses the next day and ended down 5.2% in the regular session.
On April 19, 2007, Google edged up 2.6% in night-trade after beating Q1 estimates. Shares trimmed those gains the next day, ending the regular session up 2.3%.
Google is always actively traded following its earnings release after the closing bell. Google may not only present a good trading opportunity itself, but will provide a good near-term directional indication for the entire Internet sector.
Brooks McFeely is widely regarded as the leading expert on extended-hours trading. He is a Managing Partner for Brochet Capital Partners, LP and the founder of Midnight Trader, Inc. (www.midnighttrader.com), the leading provider of pre-market and after-hours trading analysis and news to retail and institutional investors.
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