Earnings Whispers' Trader Services focus on combining the best earnings research (with the most accurate published earnings expectations anywhere), the most thorough sentiment data, extensive quantitative studies, and chart analysis to help traders take advantage of the short-term moves around earnings.
Our trades primarily consist of two types: 1) Before-the-news Trades and 2) After-the-news Trades. Both types of trades consist of long trades (buying) and short trades (selling short).
As of December 30, 2015, our Before-the-news Trades were up 452% and our After-the-news Trades were up 737% - after commissions without using margin and without compounding returns.
The Before-the-news Trades consist of stocks of companies that are primarily in the Momentum phase of the Earnings Expectation Life Cycle and the trades capitalize on the Earnings Announcement Premium (EAP) placed on such stocks ahead of the earnings news. The trades are entered three to four days before the company's earnings release and, depending on your risk tolerance, are exited either at the close before the earnings release or at the open immediately following the news.
For example, in the fourth quarter of 2014, the U.S. economy was growing well and oil prices had collapsed, created a perfect tailwind (get it) for Southwest Airlines (LUV) as passenger miles were increasing and its largest expense was dropping, leaving professional analysts expecting upside to consensus estimates. The consensus earnings estimate was $0.54 per share and the Earnings Whisper ® number was $0.58 per share. Investor sentiment was inductive to trading long ahead of earnings and our Earnings Whisper Score was a +5 meaning there was quantitative evidence the stock would see strength going into its earnings release and through the open following the news. Plus, the stock had pulled back while in an uptrend. On January 16, 2015 the stock was a Long Earnings Whisper Play ahead of its earnings release with the stock opening at $38.68. The stock closed the day before its earnings release at $41.83 and opened at $43.45 after the company reported earnings of $0.59 per share - for a total gain of 12.33%.
The After-the-news Trades consist of buying stocks of companies that beat the Earnings Whisper number, provided positive guidance, or both and holding the position for two trading days - the period of time when most of the Post Earnings Announcement Drift (PEAD) occurs. The After-the-news Trades also include shorting stocks of companies that miss the Earnings Whisper number.
On January 29, 2015, Harmon International (HAR) reported earnings of $1.79 per share. This was above the consensus earnings estimate of $1.29 per share and the Earnings Whisper number of $1.33 per share. The company also raised its fiscal year earnings guidance. When these results were measured against investor sentiment going into the company's earnings release, it calculated to a Power Rating of 73 and made our play list for the day. The stock opened at $113.01 and closed the next trading day at $129.63 for a 14.7% gain.
For those who like to trade short, DineEquity (DIN) reported earnings of $1.16 per share on February 25, 2015. This was above the consensus earnings estimate of $1.14 per share but below the Earnings Whisper number of $1.17 per share. When measured against investor sentiment heading into the earnings release, the results calculated to a Power Rating of 27 and the stock became a short trade (a strategy that makes money when a stock declines). The stock opened at $113.70 and, despite beating the consensus earnings estimate, closed after two trading days at $109.69 - a decline of 3.5%.
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