Lynn,
You raise an excellent point and it's not a novice question, many traders with more years than you don't fully understand the earnings phenom, i'm no expert either but to answer your question -
I do see risk in holding thru earnings, there inevitably will be a dip the day of or day after they report depending if its announced before/during/after market hours... why? Because there are hundreds and even thousands of traders(like you and I) who are making the same play, it's almost becoming a self-fullfilling prophecy, but that's okay as long as you UNDERSTAND THE PLAY.
Look at the charts for: GE,YHOO,COMS,ADBE,INTU,CMVT,PAYX, notice the earnings runnup 2 weeks prior then the post announcement selloff.
I hate to say it but it's typically smart money selling into dumb money, the SM buys in anticipation, rides the wave prior to earnings then sells into the announcement... who's buying? DM reading the paper, business week, hearing it on CNN and deciding "hey, earnings are great, must be a good buy, lets jump in". Long term they're not bad investment decisions, but short term you must go with the trend.
Having said all that, let me contradict myself slightly with ELNK b/c (as you astutely mentioned) there is an added twist of a buyout via either GTW or FON(an equity owner in ELNK) and if this is announced before earnings then all bets are off and the price will rise to its takeout and stay there thru earnings. If the buyout isn't announced then I would expect the upward movement to continue then dip after earnings. It's simply short term traders moving on to the next opportunity.
Lets talk next Mon-Tues and see where we are, long term ELNK is a great buy and hold, just not my cup of tea right now. Take care, Dave
PS - 2 related plays are (1)shorting after earnings (2)going long after the big selloff. Lets discuss next month after the craziness has died down. |
