Stock earnings reports come out over a six to eight week period every quarter. This period is loosely referred to as earnings season. When companies announce their earnings and general financial status their stock prices typically correct for the new information. These stock price corrections are typically in a range of a few percent or less. This is because earnings reports usually come in reasonably close to analysts’ expectations. However, when they are drastically different than expectations a stock price will rise or fall quickly and dramatically.
A stock investor or stock trader seeks to anticipate movement of stock prices by anticipating earnings reports. Fundamental analysis of intrinsic stock value and margin of safety are useful in predicting long term stock prices. However, for the short term this next quarter’s earnings reports and estimates of the same drive stock prices. Traders use both fundamental and stock technical analysis in trading stocks. The fundamentals help traders anticipate if reports will be correct and what the long term picture will look like. Tools like Candlestick stock charts help traders profitably read market sentiment coming up to and following the release of stock earnings reports.
With over five thousand publicly traded companies in the USA there are a lot of earnings reports. Traders and investors typically focus on companies that they are familiar with or on which they have done research. While companies offer useful information throughout the fiscal year they are prohibited from reporting, or leaking, financial results in the period immediately preceding the release of earnings reports. This leads to a lot of speculation in the stock market news and often gives rise to more rumors than useful information. During this time traders use Candlestick analysis to assess market sentiment and Candlestick trading tactics to trade stocks.
There are typically many analysts providing earnings estimates prior to reports coming out. These estimates tend to drive stock prices in the days coming up to the release of each individual report. Then, when the report comes out for a company the estimates turn out to be high, low, or exactly correct. There is commonly a period or stock volatility as the market corrects for the new information. If the correction is large there can be a sort of market inefficiency as traders and investors seen to assimilate the new data.
Stock traders using candlestick patterns as a guide can often profit both before earnings reports come out and immediately thereafter. By recognition of well-known price patterns traders can profitably buy stock, sell stock, or sell short during periods of price fluctuation. A long term investor will simply hope to pick up a bargain if he believes a stock is underpriced before or after reports come out. Traders have a bit more flexibility because stock traders are commonly looking for stock price change, not only stock price appreciation. With Candlestick signals stock, commodities, options, futures, and Forex traders look for price opportunity at all times and not just when earnings reports are due.
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