It’s Been A Busy Week For Equities

It’s been a busy week for equities with many of the major blue chips reporting Q3 numbers and a couple of IPOs in the mix too. Reporting season is always busy for us short term traders with many gambling on better or worse than consensus figures and looking to profit in a very short time period. When I first started to trade over results I found it quite alien that a firm could release what seems like good profits but still go down. I would read the headlines and think to myself, yeah those figures look pretty strong to me but then the stock would open down and I would end up sitting on a loss. It was only with more experience and knowledge that I then begun to understand that the actual figure that the company releases is only a part of the equation, arguably the biggest part of the results would be the analysts’ expectations! And this is where the stock movement, whether up or down would steam from.

For example if a firm reported a loss of say £1 billion, you would be right in thinking that this is bad news and you would totally expect the share price of that firm to fall right? Well not necessarily, in fact you could actually see the stock price rises if the market (analysts) had said that they had expected a loss of £2 billion! In the instance the company has made a loss but the loss is only half as bad as the market/analysts had feared which could be viewed as the company is making moves in the right direction to profitability. Also the share price may have dropped over the previous days / weeks / months in anticipation of bad results, but the results in the grand scheme of this look ok.

This works on the flip side too, for example, if a company has been doing very well and analysts expect them to make bumper profits of say £5bln but the company only report profits of £3bln, then although £3bln is a good profit in any company, the shares may have been rising in anticipation of better profits and therefore the share price may suffer.

There are other contributing factors of course, and as the old saying goes ‘The Devil is in the Detail’ and many firm with release a huge report of their figures but there will be many little things in there that don’t red particularly well. So headlines might read very well but there may be some hidden bits in the report that  don’t initially stand out that could have implications on the share price, i.e. reduction of dividends or reduction of forward guidance etc.

The moral of the story is be vigilant when trading over results, there can be some fantastic trading opportunities but trade with caution and make sure you know what the expectations were prior to the results to enable you to decide how you wish the react when the stock opens that morning.

Good luck!

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