Follow ‘Big Money’ Lead During Earnings

2021-07-21

Earnings season is in full swing and stocks are rallying higher, erasing the sharp pullback that started the week.

So how do traders get in on the earnings action during this roller coaster market movement?

Start by screening stocks that present a higher probability for potential gains. Earnings season moves quickly and there are many stocks preparing to report earnings.

For traders, there is no need to shy away from popular, higher-priced stocks like those in Big Tech. Also, don’t avoid smaller, lesser-known companies that may deliver profitable trade setups.

One key area of performance to focus on when evaluating a stock is earnings per share (EPS) growth. This indicator can reveal potential for a stock to outpace the market or general expectations.

EPS also can attract the attention of large, institutional investors whose interest can get the stock moving higher in price. They look to target the S&P 500 which is expected to report the highest earnings growth in more than 10 years.

When looking at the past four quarters (Q2 2020 through Q1 2021), actual earnings reported by S&P 500 companies have exceeded estimated earnings. Strikingly, on average, 83% of companies reported EPS above their estimates.

This is powerful insight for traders screening for earnings season potential considering the wild year in the market due to the pandemic.

EPS growth is not an all-knowing indicator, and earnings season continues to present risk. EPS does provide quick insight into a stock’s earnings season potential early in the screening process.

We Saw: Market continued higher with another rally day —

  • U.S. manufacturers speaking about inflation headwinds ahead
  • Leisure travel continues uptick as hotels work to recover
  • Earnings season heating up with more quarterly reports

We’re Watching: Lack of trust in strength of rally —

  • Level of weakness in market next week
  • Taking easy money when can beats flipping burgers
  • Setups in: BNTX, QQQ, SE, NFLX