The Whisper Number Impact: Market Close Earnings Preview

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by: John Scherr

Knowing how likely a stock's price will move following an earnings report will help you make better trades. Many investors believe that beating or missing the whisper number has the greatest impact on stock movement. If the number is exceeded, the stock is rewarded and prices move higher. If the number is missed, the stock is punished and prices move lower. Unlike the analysts estimate, the "whisper number" from WhisperNumber.com has actually been proven to have a greater impact on stock movement.

Expected earnings reports and the whisper number impact for October 27th, 2011, after market close:

Baidu.com (NASDAQ:BIDU) reports earnings after market close. The whisper number is $0.83, in-line with the analysts estimate. Baidu has a 79% positive surprise history (having topped the whisper in 15 of the 19 earnings reports for which we have data). The average price movement (starting at next market open) within 20 trading days of these 19 earnings reports is -6.1%. Last quarter the company reported earnings three cents ahead of the whisper number.

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Gilead Sciences (NASDAQ:GILD) reports earnings after market close. The whisper number is $1.03, two cents ahead of the analysts estimate. Gilead has an 82% positive surprise history (having topped the whisper in 18 of the 22 earnings reports for which we have data). The average price movement (starting at next market open) within 20 trading days of these 22 earnings reports is +1.3%.

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Advanced Micro Devices (NYSE:AMD) reports earnings after market close. The whisper number is $0.08, two cents short of the analysts estimate. AMD has a 39% positive surprise history (having topped the whisper in 17 of the 43 earnings reports for which we have data). The average price movement within five trading days (starting at next market open) of these 43 earnings reports is -2.7%. But that weakness turns to strength as the average price movement within 30 trading days (starting at market open) of these 43 earnings reports is +4.5%.

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Eastman Chemical (NYSE:EMN) reports earnings after market close. The whisper number is $1.08, two cents short of the analysts estimate. EMN has an 83% positive surprise history (having topped the whisper in 20 of the 24 earnings reports for which we have data). The average price movement within 30 trading days (starting at next market open) of these 24 earnings reports is +0.7%. Last quarter the company reported earnings seven cents ahead of the whisper number.

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KLA-Tencor (NASDAQ:KLAC) reports earnings after market close. The whisper number is $1.19, two cents ahead of the analysts estimate. KLAC has a 61% positive surprise history (having topped the whisper in 14 of the 23 earnings reports for which we have data). The average price movement within 30 trading days (starting at next market open) of these 23 earnings reports is +1.8%. The average price movement within 20 trading days when topping the whisper number is +6.4%, while falling short of the whisper shows an average price move of -5.2%.

Qlogic Corp. (NASDAQ:QLGC) reports earnings after market close. The whisper number is $1.32, two cents short of the analysts estimate. QLGC has a 52% positive surprise history (having topped the whisper in 14 of the 27 earnings reports for which we have data). The average price movement within 30 trading days (starting at next market open) of these 27 earnings reports is +2.3%.

Leggett-Platt (NYSE:LEG) reports earnings after market close. The whisper number is $0.36, in-line with the analysts estimate. LEG has a 52% positive surprise history (having topped the whisper in 12 of the 23 earnings reports for which we have data). The average price movement within 30 trading days (starting at next market open) of these 23 earnings reports is +1.8%. Last quarter the company reported earnings two cents short of the whisper number.

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.

According to the Wall Street Journal, "the percentage of companies that have beaten expectations often is cited as a barometer of corporate profitability, an indicator of how well the economy as a whole is doing or a predictor of where the stock market is going. What goes unsaid, however, is that these positive surprises are becoming so common they are nearly universal. They are predetermined in a cynical tango-clinch between companies and the analysts who cover them. And there is no reliable evidence that the stock market as a whole will earn higher returns after periods with more positive surprises."

"In short, there isn't anything surprising about earnings surprises. They aren't the exception; they are the rule. "All the numbers are gamed at this point," says James A. Bianco, president of Bianco Research."

Whisper numbers provide the unbiased earnings expectation proven more significant than the analysts estimates.

All trading involves risk and the information presented is not intended to be a recommendation of any kind.

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