How To Trade Earnings After The News

With Monday came an ugly reversal as the major indexes sold off heavily after being up big well into the trading session. The S&P 500 and especially the NASDAQ soured and ended the first trading day of the week deep underwater.

Stocks put on the breaks after California and Oregon rolled back their re-opening plans. California Governor Gavin Newsome ordered indoor operations to cease for bars, gyms, restaurants, personal care, haircuts, movie theaters, museums… without providing an end date.

Burgeoning COVID-19 positives has Wall Street worried much of the country could follow California’s lead and head back to “stay at home orders”, repeating the first go around with coronavirus.

However, since the COVID-19 snapback started at the end of March, these big, red bar days, and there have been plenty of them, have proven to be “buy the dip opportunities” as prices climbed higher within a couple of days. Our short-term, momentum meter suggests sellers could incite more weakness in the near-term. It’s not uncommon for stocks to remain under pressure following days like Monday, but the overall bullish reading hints that weakness could be short lived, again.

There is always the chance that it could be different this time; however, experience says to follow the trend until it is no longer a trend.

Trends aside, equity prices will take their cues from earnings as the second quarter starts to build momentum. So far, 19 S&P 500 companies have released their financial report cards, 15 announced earnings per share (EPS) above expectations while four disappointed with lower EPS than forecasted. Twelve of the 19 recorded sales that topped the street’s projections.

If that trend continues and third quarter guidance is mostly positive, then dips are likely to remain buying opportunities.


Technology dominated last week’s performance leaderboard with eight of the top 10 spots. ARK Next Generation Internet ETF (ARKW) barely beat last week’s number 1 ranked exchange traded fund, First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) 5.49% and 5.48% respectively.

Investors interested in either ETF might consider waiting for weakness to dissipate before jumping in. Both charts line up with our view of the overall market, which could mean lower prices for ARKW and QCLN in the days ahead.


During Q2 earnings season, we’ll post our earnings estimates and projected EPS surprises for some of the top companies scheduled to report in the next week. Almost 200 companies will release their numbers by the time we meet again.

By in large, results could continue to be better than projected with bank/financial stocks posting some of the biggest surprises, according to our proprietary models. Ultra-aggressive investors might consider getting in front of earnings looking for pops or drops based on actual results.

Longer-term investors might consider adding companies that exceed expectations. Studies have shown that companies with bullish earnings surprises tend to outperform the markets in intermediate term in a phenomenon known as post-earnings drift.

Here is a list of some of the biggest names expected to share their quarterly reports cards and our proprietary projections.

May all your longs go up and your shorts go down.

Rich Meyers