- Posted by DynamicHedge on April 27th, 2015 at 12:59 pm
How can I play $AAPL after around earnings? This is a question that has plagued traders since the beginning of time. There’s now a way to understand and interpret this conundrum in a couple of clicks. Link to analysis at the bottom of the post.
Most people will simply look at the last 2-years of $AAPL earnings and make a judgement call about the trend. This is a fine strategy. Buying the close before every $AAPL earnings announcement in the last 2-years has led to some big winners and let’s face it, the trend is your friend. As you can see in the analysis, the dominant patterns are all bullish (warning, this is a small sample size).
If we hone the search to match more closely the current market conditions, we get a slightly more nuanced picture. The current market conditions of $AAPL is an uptrending stock with strong performance leading up to the earnings announcement. Why is this important? The market is a discounting mechanism, and if the market is expecting strong earnings, it may well price those earnings into the stock before the announcement. So, it makes sense that we would control for those conditions.
The samples size is very small, but the point is clear. In the past when the market is already uptrending and the market has rallied at least 2% leading into earnings we still get the big gaps higher but when they hit, they hit for a 3% pop and when they missed, they drop the stock around 6%.
Overall, $AAPL earnings are very bullish. However, expectations are high, so be cognizant of what can happen if they miss. Risk always deserves the lions share of your focus, and sizing positions to compensate for that risk is a big part of managing it.
Analysis provided by Market Memory.
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DynamicHedge is an equities, futures and derivatives trader based on the West Coast. He runs a long/short opportunistic relative-value strategy within a proprietary trading group. More
- How does Apple trade after earnings?
- 70 days of suffering in WalMart
- April is very bullish in a weird way
- Representativeness Bias: Easy Classifications
- Confirmation bias: A dependable filter of objective information
- Conservatism Bias: How to know what new information to focus on
- Sentiment Flip
- Pardon the interruption
- Wait for the market to flex
- How SPY typically trades after a gap up/down on NFP report