It’s July earning season and stock rotation time, do you have a plan?
This period of time in the market always brings rotation from 2nd quarter leaders to new 3rd quarter leaders. The 4th of July light holiday week trading tends to have an upside bias. Then when the following week of trading begins in July we see more volatility as investors brace for quarterly reports and outlooks ahead. Already we are seeing early drops in prior market leaders as we begin full July trading, and a sell off in small cap biotechs on Monday.
The most volatile periods in the market tend to be in January, April, July, and October and as you can guess those are all quarterly report periods for US listed stocks. Traders are betting on good earnings reports, and even the shorts are betting on bad earnings reports from company to company. Often the best strategy is to avoid holding a stock into an earnings report, and instead perhaps trade into the earnings report but make sure you are out 1-2 days prior. Maybe they report a great quarter and the stock spikes, but in many cases you can get crushed for 10, 15, 20% losses or more following a conference call with a bad outlook. A company can report a great 2nd quarter but the outlook is not strong for the 2nd half, or the profit margins were not quite what Wall Street wanted, or the earnings didn’t beat by enough. Instead, look to buy a good stock after a post earnings pullback and consolidation whether the report was “good” or “bad”. Don’t get burned trying to speculate, speculators lose money in the markets… trade smart!
This period of time in the market always brings rotation from 2nd quarter leaders to new 3rd quarter leaders. The 4th of July light holiday week trading tends to have an upside bias. Then when the following week of trading begins in July we see more volatility as investors brace for quarterly reports and outlooks ahead. Already we are seeing early drops in prior market leaders as we begin full July trading, and a sell off in small cap biotechs on Monday.
The most volatile periods in the market tend to be in January, April, July, and October and as you can guess those are all quarterly report periods for US listed stocks. Traders are betting on good earnings reports, and even the shorts are betting on bad earnings reports from company to company. Often the best strategy is to avoid holding a stock into an earnings report, and instead perhaps trade into the earnings report but make sure you are out 1-2 days prior. Maybe they report a great quarter and the stock spikes, but in many cases you can get crushed for 10, 15, 20% losses or more following a conference call with a bad outlook. A company can report a great 2nd quarter but the outlook is not strong for the 2nd half, or the profit margins were not quite what Wall Street wanted, or the earnings didn’t beat by enough. Instead, look to buy a good stock after a post earnings pullback and consolidation whether the report was “good” or “bad”. Don’t get burned trying to speculate, speculators lose money in the markets… trade smart!
