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Strategies & Market Trends : Stock Attack -- A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Magnatizer who wrote (6965)	3/17/1998 7:40:00 PM
From: Chris	Read Replies (2) \| Respond to of 42787

time to get out my check book for some FA books <gg>.. i think DC, Bob G., judy, sonki, and 56er's club are only the few of many that have a good handle on the FA/TA combined approach. (sorry if i missed anyone <g>)

To: Magnatizer who wrote (6965)	3/18/1998 6:09:00 AM
From: Robert Graham	Read Replies (1) \| Respond to of 42787

I personally have not focus specifically on earnings plays. However, I have some observations to make. Comments and feedback is welcome. Please bear with here since it is a very late day for me. Last year was a very strong bull run by the market. Earnings plays became in "vouge", along with split plays. This happens in a maturing market that is demonstrating allot of strength along with associated earnings increases in the case of earnings momentum plays. The high-techs were hotly played in this fashion. This picture is changing. From what I see, there is more of a frequency of disappointing price action of stocks that have demonstrated this "earnings velocity". This is particularly true with the techs but if I remember correctly I I have also seen this with stocks outside of the tech sector. Also there is a higher incident of selloffs after the earnings announcement. Remember that what happens leading up to the announcement and also what price action follows through after the announcement depends on market sentiment and whether the anticipated earnings has been already priced into the stock. Also there has been evidence of the funds selling into strength which alters the stock's behavior even in the middle of an earnings play. So there are times in the market where positive earnings and even earnings surprises are not good enough to "pop" a stock. Instead a selloff ensues. This has happened last year when a stock did not beat the whisper numbers and it sold off after the earnings announcement. This was due to a very exhuberant market that had very, very high expectations. Now we are seeing the market change in part as the result of underlying fundamentals that have been changing now for a period of time. The market is slow to catch up with fundamental changes, and can even be not responsive to positive or negative earnings announcements of particular stocks. Do not forget that when a market correction starts, the selloff that ensues will be of prominent importance over any earnings momentum play. Never go against the market trend. So the market itself is an important element to this equation for profits besides the individual stock. Now the funamentals appear to be shifting to an eanrings growth decrease for the S&P 500 for example. Funds are selling off the techs which has provided market leadership in the past. Perhaps the days of strong earnings momentum is coming to a close here? If this is true, for those who only know how to play earnings releases and on the long side at that, they will have problems making those same profits going into the future. This is not a good situation for a full-time trader to be in. Has anyone else seen evidence of the more frequent ocurance of stock price disappointments with what was expected to be a sucessful earnings play? Technicals can be a substantial help if a trader has good experience with reading charts of stocks. Most all of the time the qualities of a stock can be read as far as strength or lack thereof for instance. This can much of the time be quantified as far as determining the likeylihood of the trend remaining in place and a given resistance being broken and a support respected by the stock. I will say once again this takes experience. Knowledge of the money flow in the market and market sentiment can help in a substantial way to render a judgement made by the technician more reliable. Still if the trader does not know how to manage risk through they way to manage their entry into and exit from a stock, a system that is accurate mostof the time will not work for them. However, if the trader knows how to manage their entries and exits, they can make a profit on a system that is only accurate 30% of the time. Furthermore, if the trader knows how to take the short side, money can be made in most any market. This is a requirement in order for a full-time trader to survive. Matter of fact, many professional traders do not consider a trader a professional until they know how to take the short side of a trade. This is how much importance the seasoned trader places on being able to take both the short and long side of trades. This all comes down to being able to adapt to the market. As the market changes, the trader needs to change along with it. If all they have as part of their bad of tricks is how to playing earnings, or splits, or extreme momentum stocks, they will lose in the end. TA can help to a substantial degree here. Furthermore, TA does not have to be anywhere close to 100% accurate in order for the trader to profit. It is the trader's system and how it manages the risk of a trade that will determine the trader's success. Fundamentals can be very helpful, but IMO are not a requirement. A carefully designed and proven system that does not fix the trader to one approach to trading (like earnings plays) or one kind of stock or one type of market (a strong bull run) is what will leave the other traders "in the dust". For this trader will be able to adapt to the market and continue to make money where others flounder once the market changes away from what they are familliar with. And I will say here that any trader that has "grown up" as trader in the last year in this unprecedented bull market likely has no idea of how the market can change and render their current approach useless. There is much more to reliable profits over the long run than "earnings momentum" and any "fundamental" based trading. It is the trader themselves. So be prepared to face surprises along the way and keep your eyes open for evidence of these changes in the marketplace. A day will come when splits and earnings plays of the kind we have had in the past will become out of "vouge". Work to place more tools in your tool kit and not reliant of a specific type of play with the objective of being able to adapt to the constantly changing market and continue to be profitable. Bob Graham