Earnings Trades You May Have Missed Last Week

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 |  Includes: HPQ, ROST, SPLS, TJX, URBN
by: WhisperNumber

Over the past week you would have thought there was only one company reporting earnings and one company deserving media attention. That company was Hewlett-Packard (NYSE:HPQ). HP reported earnings on August 18, after market close. Earnings topped the analysts estimate by a penny, but only reported in-line with the whisper number. But the onslaught of reports, articles. and stories that followed numbered in the hundreds. There was more to this story than just earnings.

The focus of attention was the announcement that HP will spin off or sell the personal-computer business that is the core of its company. The company also said it will stop producing smartphones and tablets using webOS software. Obviously this over-shadowed any earnings news.

But this news also over-shadowed every other company that reported earnings last week. Yes, it was important company information, but were you willing to take a bet on a long trade with the recent market volatility and the company selloff of its core business? You probably stayed away from the stock all together.

The trades you most likely missed consisted of three long positions and one short. Market volatility may have kept you sidelined from taking any long positions let alone TJX, URBN, and ROST, and the media reports of 'topping earnings' may have kept you on the wrong side of the trade with SPLS. Here is what we alerted clients to and what you may have missed:

TJX Companies (NYSE:TJX): TJX reported earnings of $0.90 on August 16, before market open. This was three cents ahead of the analyst estimates and two cents ahead of the whisper number. Our analysis indicates the stock's average price move in a 25-day period when exceeding the whisper is +8.6%. TJX opened trading (on Aug. 16) at $52.60 and currently trades at $54.44 and better. This is a 3.5% gain in just six trading days while the Dow is down 5.4%.

Urban Outfitters (NASDAQ:URBN): URBN reported earnings of $0.35 on August 15, after market close. This was three cents ahead of the analyst estimates and seven cents ahead of the whisper number. Our analysis indicates the stock's average price move in a 15-day period when exceeding the whisper is +7.5%. URBN opened trading (on Aug. 16) at $26.18 and currently trades at $26.62 and better. This is a 1.7% gain in just six trading days while the Dow is down 5.4%.

Staples (NASDAQ:SPLS): SPLS reported earnings of $0.22 on August 17, before market open. This was two cents ahead of the analyst estimates BUT three cents short of the whisper number. Our analysis indicates the stock's average price move in a 15-day period when missing the whisper is -4.9%. SPLS opened trading (on Aug. 17) at $15.40 and currently trades at $14.08 and lower. This is an 8.6% (short position) gain in just six trading days while the Nasdaq is only down 0.2%.

Ross Stores (NASDAQ:ROST): ROST reported earnings of $1.28 on August 18, before market open. This was three cents ahead of the analyst estimates and four cents ahead of the whisper number. Our analysis indicates the average price move in a 25-day period when exceeding the whisper is +7.1%. ROST opened trading (on Aug. 18) at $67.55 and currently trades at $73.00 and better. This is an 8.1% gain in just six trading days while the Nasdaq is down 0.2%.

The data found here is the same information we provided our clients. The difference is they were able to get in at the right time while other traders were trying to clear their way through the Hewlett-Packard news. (Data indicated HP wasn't considered a viable earnings trade this quarter.)

When analyzing the data we collect, the most important aspects are how a company reacts to beating or missing the whisper number, the average post-earnings price movement, and in what timeframe (see link in profile to receive alerts). Keep in mind that trading on whispers is a technical play on market psychology, rather than a bet on a company's fundamental strengths.

A company's 'reaction' to the whisper number expectation is the key - on average companies that exceed the whisper are 'rewarded', while companies that miss are 'punished' following an earnings report.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.