Buy This Stock Before Earnings?

Last Monday I presented a short trade setup from that morning's Seasonal Forecaster newsletter in What Should You Do With This Stock? I didn't identify the stock in the blog posting, but did you figure out which one it was? It was Goldman Sachs (GS).

Let's play this game again, but with a slight variation. This time let's consider an earnings release play.

Mystery stock ‘X' is working upwards from a pullback early this year. It has managed to stay above its 200-day moving average, and the 50-day moving average is about to cross above (a pattern called a ‘Golden Cross', which many traders look for).

Now what makes this stock interesting is two things. First, the stock has been under accumulation since its drop earlier this year. The sharp January drop was due to the company guiding below consensus. In March, the company gave mixed guidance, but accumulation began showing up (as evidenced by the volume pattern and the Up/Down Volume and On Balance Volume indicators).

In late May the company beat earnings expectations by 15% and the stock jumped 12.6% that day. Accumulation in the stock has continued, with the stock remaining at the higher level.

The company is due to announce earnings again in 19 market days. This is the second point that makes this stock interesting. The stock has a very good track record of rising into the Q2 earnings announcement.

For example, the track record of buying this stock 19 sessions before their Q2 earnings announcement and selling it one day after is:

Now a 67% success rate isn't that impressive, but there were only two losses greater than 3%, and many of the gains were impressive (any option traders reading this?)

But what if we bought the stock closer to the announcement or held the trade for a longer period of time after the Q2 earnings?

Wow! This is a pretty good track record. Only 1 loss in 12 years and a net 9% gain.

So the track record is really saying that it has been a pretty good bet to buy this stock (or a replacement like a long call, since options are actively traded on this stock) shortly before their Q2 earnings announcement, and hold it until after the announcement.

Of course a trade like that carries a little more risk, but the potential reward, within that short a time, is attractive.

Today's Seasonal Forecaster newsletter details which stock this is and offers an interesting way to trade it.

Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, please click on the following link: www.markettamer.com/seasonal

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2015 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com.

The content on any of Market Tamer websites, products, or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options, and other securities involve risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities are not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options (http://www.optionsclearing.com/publications/risks/riskstoc.pdf). The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.

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