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Trading Earnings Season at 52-Week Highs The bull market run has caught a lot of investors off guard. After more than a year of recession worries, inflation fears have passed and the stock market indices are trading at 2023 highs. As earnings season approaches many stocks are hitting 52-week highs. The next month of earnings results will be a catalyst for these stocks, which is forcing decisions for investors to take profits or let it ride. Below we will discuss earnings season and the current market atmosphere as we approach the bulk of the earnings reports for Q2. We will talk about some trading strategies investors can take into the end of 2023 and discuss some stocks to watch that are making 52-week highs. What is earnings season? Earnings season happens four times a year and is typically the busiest around weeks four through seven of the quarter. This is when many of the S&P 500 companies report how their business has done in the previous quarter. A company will report revenue and a bottom-line number called earnings per share, or EPS. This number is basically the company's profit for each outstanding share of common stock. Often the company will have a conference call and issue guidance for the quarter or fiscal year ahead. This gives analysts, traders, and investors a clear picture of what to expect in the coming quarter. Traders will quickly react to the news, buying or selling the stock based on whether that outlook is positive or negative. If the earnings number is a surprise, the market can be shocked and react in a major way. This is why a stock can move over 10% in one day after they report earnings. Trading 52-Week Highs Even as a bull, I have been impressed with the almost 20% up move in the S&P 500 this year. Even more impressive is the 40% gain in the Nasdaq. Investors can not be blamed for ringing the register after such a big move. But in many cases, individual stocks still have some meat on the bone and will continue to see the upside. There are two questions that investors need to ask themselves: 1.) Have stocks priced in perfection? 2.) Will earnings live up to expectations? For the first question, the answer is undoubtedly yes. Investors need to understand that when a stock has made such a big run into an earnings report, a miss on expectations will cause a sell-off in that stock. For the second question, there is no clear answer yet, but we have already seen some impressive numbers from the banks. Companies have adjusted well by managing costs in anticipation of a recession. Inflationary costs have come down, meaning the adjustment made by corporate America might lead to fat margins and healthy bottom lines. Being aware of the above, investors have a clear signal that they need to have a strategy for earnings season. Let us go over a couple of approaches one can take if already long a stock. Continued . . . | ||||||||
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| Sell and look for reentry- You will not go broke taking profits and after a big run, it is smart to take some chips off the table. If the company pulls back after earnings, you can always get back in. Let it ride- We have seen some big moves and they could accelerate higher if a company has an impressive quarter. However, even with the big numbers the banks posted, the stocks were sold after gapping higher. This tells us investors are in profit-taking mode and traders letting it ride should keep a nimble mindset. Options- One of the best ways to lock in some profits and hold onto your stock is to use options in EPS. There are two popular ways to protect your position that are very different from each other. The first is writing calls at a higher strike price. This can create some income for an investor and help protect against a down move but will limit the upside. The second way to protect against the downside is to buy puts. If the stock were to go lower, the puts will appreciate and allow the investors to minimize any losses. How to Trade Post Earnings Whether you are trading earnings before or after the number, knowing who is reporting is key. Paying attention to the list of companies reporting every week can be found via the Zacks earnings calendar. If a stock moves higher after EPS, investors can always ride that momentum with a stop at the pre-earnings price. If it moves lower, I like to use these "buy the dip" steps below to find ripe opportunities after a stock has reported earnings. 1) Watch for Moves in the Zacks Rank - The first step is to check the recent Zacks Rank #1 (Strong Buy) stocks every morning. When one sees a fresh stock on the list that has recently moved lower in price due to earnings, it is time to get interested. Be sure to check the EPS numbers and guidance to make sure there was no big negative signal. If not, go on to the earnings estimates page for the stock and see if analysts are taking the numbers up or down. Why would investors sell a stock when analysts are raising estimates and still bullish? Well, this could mean some manipulation is brewing and the stock has moved irrationally lower. 2) Check for Technical Support- After the fundamentals check out, it is time to look at the chart. Moving averages, trend lines, and Fibonacci levels are used as support levels by computer and human traders alike. If I see a level tested and support is confirmed, it is time to buy. 3) Entry Price, Target, and Stop Loss- Entering a stock takes patience, but it is important that you get in at a decent price. When entering a trade, you should have a target, or even multiple targets, where you will sell and close out a winning trade. Capital preservation is a key to success. Stop losses are important for investors and traders so they can live to fight another day. You must not get married to a stock! Taking losses is just as important as taking winners and stop-loss orders to assist in that discipline. Big Names Making 52-Week Highs On July 14th, there were 173 stocks that made fresh 52-week highs that day and 80 making 52-week lows. Clearly, this is a strong market with that many stocks banging against highs. A lot of bigger market cap names are at 52-week highs and reporting over the next few weeks. Watch out for earnings reports from names like Apple (AAPL), Microsoft (MSFT, Visa (V), Meta (META), Airbnb (ABNB), Uber Technologies (UBER), and Salesforce (CRM). In Summary The market atmosphere is confusing a lot of investors, but there is no denying the current strength in stocks. Many names are hitting 52-week highs, but after that big run investors have an important financial decision to make. As earnings approach, it is important to be prepared for big moves after numbers are reported. There will be disappointment as well as positive surprises, with plenty of opportunity in between. Having a strategy is paramount and investors need to stay nimble as we move through earnings season. One approach with a high probability of outperformance, regardless of what happens next in the market, is investing in the best dividend stocks. That's why I invite you to check out our Zacks Income Investor portfolio right now. Income Investor provides
Income Investor has generated spectacular performance in good times and in times of economic uncertainty. I wholeheartedly believe that dividend investing is an ideal strategy for today's surging bull market. Your cost for sharing our recommendations and commentary for a full month? Only $1 and not a cent of further obligation. New Stock Posted This is another company with high growth potential that's likely to continue paying attractive dividends well into the future. And you can be among the first to see it. The company is an unconventional way to capitalize on Artificial Intelligence. It's a leading provider of the specialized resources that power AI's explosive growth. It's positioned for massive long-term gains — and it pays more than $13 per share in annual dividends. Bonus Report: Here's yet another reason to get started today. You'll also gain access to 7 Best Stocks for the Next 30 Days. Taken from our proven list of 220 Zacks Rank #1 Strong Buys, our team of experts hand-picked 7 stocks for an immediate breakout. We expect them to climb higher and start sooner than all of the others. They give you the opportunity to balance Income Investor's steadier approach to profits. Don't miss this special arrangement. It ends at midnight Saturday, July 22. So claim your access to both our best dividend stocks and bonus report right now » Thanks and good trading,
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