How To Protect Yourself During Earnings Season
The
market is in a bit of a runaway mode presently. The Dow has
had basically a straight shot up since the end of November. The S&P has
shot straight up since early December and the Nasdaq since mid-December. Pullbacks
have been virtually non-existent over these time frames. (The S&P and Nasdaq
haven’t pulled back for more than one day in their stated time periods,
and the Dow hasn’t pulled back for more than two days.) We are overdue
for a real pullback — one that will actually shake out a few longs and
attract some shorts. If you’re getting a good ride out of some long positions,
I’d continue to let ‘em ride. Just be prepared for a pullback sometime
soon.
The big news over the next
few weeks will likely be earnings-related. I can’t stress enough how important
it is for you to be aware the earnings dates of the stocks you hold. Don’t
be caught by surprise and mistakenly take on more risk than you are comfortable
with just before an earnings release.
I would suggest that you
either keep an extra column on your list of stocks with the earnings date next
to it, or have a calendar with all your stocks listed on the date of their release.
Be sure to note whether earnings are due before or after the bell. For those
looking for an easy way the create their own earnings calendar, you may want
to check out www.earnings.com. Simply enter your portfolio and click “calendarâ€.
Many times, by watching
the action of a stock as it approaches its earnings release, you may get tipped
off if that stock is going to surprise to the upside or downside. It’s
especially important to watch for unusual activity the day before the release.
Last earnings season, I
wrote a column with several examples of stocks that made sharp moves lower just
before earnings disappointments were released. I would encourage you to go back
and review that
column from October 27.
By being prepared, you may
be able to avoid some hits to the portfolio while still enjoying the positive
surprises that will hopefully help you out.
Best of luck with your trading,
Rob Hanna
robhanna@rcn.com