Earnings Season: Tricks to Playing a Pre-Earnings Run
By Bryan Bottarelli
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The Dow Jones Industrial Average has carved out gains in 12 of the last 13 trading sessions.
Tomorrow, we’ll have some tech heavyweights announcing first-quarter earnings.
The best way to play moves like this are to enter near-term calls and participate in any buying interest leading up to the earning announcement.
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Earnings Season: Tricks to Playing a Pre-Earnings Run
As of midday, the Dow was up 64.20 points to 12,784.66 -- carving out gains in 12 out of the last 13 trading sessions and supporting the historical statistic that ranks April as the top month of the year to be long. On an intraday basis, the Dow hit 12,790.02, which passed the Dow’s closing high of 12,786.64 from February 20.
Today’s upside came partly because of the Labor Department, which reported a 0.1% March increase in its core consumer price index -- alleviating anxiety about the Fed’s need to raise interest rates.
At the same time, gains came thanks to an ever-so-slight up-tick in housing starts -- homes rose 0.8% in March to hit a seasonally adjusted annual rate of 1.518 million.
Economists expected 1.50 million housing starts, so you can see that number barely beat the estimate. Nevertheless, at least the housing sector is not miserably falling short of the expectations -- which could signal a spring and summer revival.
Also making news is first-quarter earnings. Tomorrow after the bell, we’ll get numbers from tech heavyweights Intel (INTC:NASDAQ) and International Business Machines (IBM:NYSE). In today’s trading, we’ve seen a strange reaction where both good and bad numbers sparked buying interest.
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For example, Coca-Cola (KO:NYSE) announced that its first-quarter profits jumped 14% -- and the stock rose 3.3%. At the same time, healthcare maker Johnson & Johnson (JNJ:NYSE) reported a profit drop of 22% -- but nevertheless this result beat forecasts and the company rose 3.1%. So both sides of the earnings coin are leading to upside gains -- which is why Adam and I are issuing a new earnings-based play in today’s WaveStrength Options Weekly issue.
As we get deeper into earnings announcements here in the second quarter, it’s important to note that the days leading up to an earnings announcement could be the catalyst that moves certain stocks higher. The best way to play moves like this are to enter near-term calls and participate in any buying interest leading up to the earning announcement. Then, with gains in hand, simply sell your calls in advance of the announcement.
After all, you typically see buying interest in stocks (like the one we’ve issued today in WOW) leading up to their earnings announcements -- and buying calls today would allow you to achieve a solid profit in the weeks leading up to this announcement.
I consider it a low-risk and high-reward way to capitalize on any upcoming earnings release. Specifically speaking, you could make a respectable 21% gain in one week -- with a carry-on move that makes you 61% in two to three weeks and possibly 150% in four to eight weeks.
Bryan
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Bryan Bottarelli is the head trading tactician for the WaveStrength Group, and is a contributing editor for Taipan Financial News. Coming off the floor of the Chicago Board Options Exchange (CBOE), Bryan uses WaveStrength chart forecasting to develop wining options plays for his service called WaveStrength Options Weekly. Bryan is also the lead editor of BottarelliResearch, an elite membership service that he independently publishes himself.
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