Page 1103 - How to Make Money in Stocks Trilogy

Buying Checklist 89

Be Cautious—but on the Hunt—
During Earnings Season

Four times a year, publicly traded companies report their earnings and sales
figures for the prior quarter. The latest numbers can pleasantly surprise—or
bitterly disappoint—professional analysts and investors. That’s why you
often see dramatic swings—up or down—when a company reports.
So during earnings season, you often see a lot of breakouts, but you may
also see several breakdowns.
Because you don’t know which way that pendulum will swing, don’t buy
a stock just before it releases its latest earnings report.
Instead, wait for the stock to announce the numbers, and see how the
market reacts. If the stock shoots past a proper buy point on heavy volume,
that could offer a chance to get in. If it sells off on massive volume, you’ll be
glad you didn’t try to “guess” and jump in early.
Here are 3 simple tips on how to handle earnings season:

• Check to see when any stock you own or have on your watch list is
scheduled to report. You can find that information on the company’s
website or through other services. During earnings season, IBD pub-
lishes the Earnings Calendar, a list of key stocks scheduled to report the
following week. You’ll find that in the Monday edition.
• Have your buying and selling game plans in place ahead of time.
If you’re considering buying a stock that could potentially break out of a
base when it reports earnings, know the exact buy point you’re looking for
and how many shares you’ll purchase. If you own a stock that’s about to
report, be sure to have a defensive selling plan in place, just in case it sud-
denly sells off.

• Consider using automatic trade triggers. If you can’t watch the mar-
ket during the day, set a trade trigger with your broker ahead of time (see
Chapter 4). You can set a conditional buy order for a stock on your watch
list to make sure you catch it if it breaks out while you’re away from your
computer. And you can set a stop-loss order to help protect your profits
or cap any losses if a stock you already own declines.