Planning Ahead for Earnings Season
Often Technical
Analysts will claim that technical patterns lead fundamentals. How can that be,
you may wonder. Perhaps you may already have seen this in charts.
It is true that for
the retail side of the market, technical patterns tend to lead fundamentals. Consequently
Retail Traders can learn to see the reflections of fundamentals via technical
patterns in charts. Why does this occur, should be your next question.
The reason why
technical patterns tend to lead fundamentals, is the fact that fundamental information
is received at different times by different Market Participant Groups. Contrary
to popular retail trading myths, not every Market Participant Group receives
the fundamental data at the same time.
An example of this is
Earnings Reports, because the data that is provided by a company during
Earnings Season is not distributed to all investors and traders at the same
time. The giant Institutions buy their information, and pay a high premium for
it. They have armies of analysts that visit companies regularly, doing a
“walk-around” of the company facilities, talking to the CEO or CFO, talking to
employees, and generally getting a hands-on view of how the company is doing
weeks ahead of any Earnings Reports.
Therefore the Dark
Pools aka giant Institutions, know well in advance the true condition of a
company and how it is likely to report for that earnings quarter ahead of the
report release.
Smaller Fund
companies who are often very small franchises, must wait for the news to arrive
with the reporting to the general public, which is on the day of the Earnings
Report release.
Professional Traders
usually find out about the company reports well ahead of the earnings release
date, especially since most work for either Buy Side or Sell Side institutions
OR have access to data that is not available to the general public, Retail
Traders, and Independent Investors.
Every Earnings
Season, Retail Traders try to guess what is going on before a company report is
released. Often times if they have exceptional skills at reading not only
candlestick patterns but also indicators that track the Institutional activity,
they are able to plan and prepare for the direction the stock or index will
move because of the reflections of fundamentals via technical patterns.
Stock charts are a
window into the world of the Professional side of the market, where paying for
data before it is officially released is a standard practice. You may find this
objectionable but there is nothing illegal about visiting a corporation, and
talking to the CEO or CFO to determine how well their company will report. It
is just costly.
With Earnings Season
rapidly approaching for the 3rd quarter AND a presidential
election that is high profile and extremely emotional, this quarter is going to
create plenty of opportunities for the High Frequency Trading HFT to trigger,
moving stocks in huge gaps or long candlesticks.
Being prepared in
advance for the Earnings Season helps Retail Traders make the right decisions,
choose the best stock picks, and earn higher profits.
The chart below is an
excellent example of technical patterns leading fundamentals, and showing
reflections of fundamentals via technical patterns.
The chart clearly
shows that during the long consolidation there was a steady outflow of
money and selling. While the consolidation held during that period of time,
indicators clearly show the selling in a slow and steady rotation
pattern.
Using indicators that
are able to move contrarily reveals what is going on fundamentally well ahead
of Earnings Reports.
Summary
Looking for these
contrarian patterns as we come into the next Earnings Season will help you
determine how the stock will behave, and how the company is likely to be reporting.
Rotation is evident, while others are clearly under accumulation.
Can stock charts show
whether a stock is going to have a good report? Yes, IF the proper analysis is
done with recognizing the reflections of fundamentals via technical patterns
in proper indicators. Remember Price Indicators and Momentum Indicators,
move AFTER price has started running.
Using indicators that
can lead price offers substantial benefits.
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Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using a StockCharts chart, courtesy of StockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
TechniTrader DVDs with every course.
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