PPR - Good learning experience on PPO and KRA

Published : November 4 2010 at 13:40 ET

The success rate of pocket pivots going into earnings depends in some measure on price/volume action leading up to period just before the earnings announcement. If the price/volume is appreciably large for the bigger capped stocks, this is a good clue. If the stock finishes up on the day on huge volume just before earnings are announced, the odds are with you that they will surprise to the upside. We have seen this action in many of the big names over the years such as AAPL, BIDU, GOOG, etc. Note that since volume volatility tends to be greater for smaller cap stocks, and such stocks are more susceptible to false rumor mongering, there is more risk in such stocks so as we say, position size accordingly. KRA and PPO would fall under this category. They look fine and have strong fundamentals, then unfortunately disappoint.


Of course, when a stock gaps down on you, it is usually best to just sell it, no questions asked. And since they are smaller cap stocks with continuation pocket pivots, this also increases the level of risk. As we have mentioned, this market has been best led by the bigger capped names, with the occasional fundamentally strong smaller cap that also does well, so your position sizes should always reflect the level of risk in the stock.

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