Earnings Roulette

By Chris Kacher, Managing Director

MoKa Investors, LLC


We always suggest investors know the earnings report date of any stocks in their portfolio. A strong earnings report can send a stock up double digit percentages overnight while a weak one can do the opposite. As we teach investors, risk management is the most important rule when it comes to investing. Always know you exit point whenever you enter into a trade. Key phrases can be searched in our ample Investor Education FAQs and Past Reports sections such as 'position sizing', 'risk management', and so forth.

Case Study #1: TTWO

On 7-11-17, we sent out a Premarket Pulse report that TTWO could be bought near its 20-day exponential moving average, or roughly at a price close to 74. TTWO then headed higher by about 8% by the time it was to report earnings today. Just before earnings, it is up to each member to decide their risk tolerance levels as such levels are unique to each investor. Some may decide to take all or partial profits ahead of earnings, while others may decide to keep their whole position, knowing that TTWO could gap higher or lower after reporting earnings. On 8-3-17, TTWO gapped higher at the open then closed up +12.2%, constituting a buyable gap up. If you had sold part or all of your position, you could have rebought it today knowing that your risk would be a small undercut of the low of the gap up. Thus, the closer you bought or rebought your position to today's low, the lower your risk.


In other words, buying right is key. Buying right was buying on 7-11-17 as close to the 20-dema as possible to keep your risk to a minimum. Our stocks often carry less than a 2-3% risk from where we suggest buying them.

Case Study #2: AAOI

In our Focus List Review for the Week Ended July 7, 2017, we notified members of the unsuccessful 5-day pocket pivot on 7-6-17 which was followed by a successful 5-day pocket pivot on 7-7-17 at which point the stock became buyable. The very next trading day on 7-10-17, AAOI traded lower by as much as -3.7% thus there was ample room to buy AAOI on that day. In context with AAOI's chart, the weakness was minor thus offered a favorable entry point at lower risk.

Then in our Premarket Pulse of 7-20-17 (time delayed for non-members), we wrote the following:

AAOI is now over 20% extended beyond its 10-dma. In most cases this can represent a climactic type of move, at least on a short-term basis. Swing-traders or those wishing to lock in at least a partial profit could consider selling into this move.

This represented a profit of nearly +50% from the time we suggested buying AAOI on 7-7-17. In this market environment, we always advise taking such steep profits.

We then alert members to AAOI reporting earnings on 8-3-17. With a profit of nearly +50% from the time we suggested buying AAOI, one should have already sold their position. Of course, it is up to each investor to determine their risk tolerance levels, thus one may have decided to book profits on a part of instead of their whole position.

Unfortunately, on 8-3-17 after the close, AAOI gapped lower by nearly -30%, thus illustrating the "bird in the hand is worth twice in the bush" principle of today's markets. Taking profits when you have them in context with a stock's chart has been key as we have illustrated numerous times. Profit opportunities abound as long as you keep your entry points clean, thus your risk to a minimum. The profits from winning stocks then more than make up for the small losses.