I'm the type of trader who looks at earning season with one eye crying and the other laughing. I love to own stocks and see them beat the market on earning. But when I think how the market can be cruel when companies miss expectations, I look for the exit door prior to earning report.
I compare an earning report to a tornado as it could shatter anything that comes on its way.
I have two types of stocks in my portfolio: short-term and long-term. I always sell my short-term stocks prior to earning report. I'm mostly happy because the earning news often weakens the stock. Let me give an example.
I had some Amgen (NASDAQ:AMGN) positions and sold them prior to market close yesterday at $113.05. The earning report came in and although it beat the market on EPS, its revenue came short of expectations. The stock plunged to as low as $105 and today it's trading at around $106.
Also, when Apple (NASDAQ:AAPL) reported earning after close yesterday, it rallied from around $406 to almost $430 and then pulled back to about $405. Today it was as low as $392 and now trading at around $406.
It's extremely difficult to get a sense of a stock's value when euphoria or panic overwhelms stocks during earning report.
I think it's important for traders/investors to realize that earning report has a 50% of being a curse or a bless. It is better to let the dust and euphoria settle and then trade with the trend. Remember, every stock is only one commission away.
Greed can potentially bring grief after an earning report.
Disclosure: I am long AAPL.