Why Pre-Earnings Stock Movement MUST Be Considered On Earnings Trades
In the LikeFolio Sunday Earnings Sheet that we sent this past Sunday, we indicated that Coach’s outlook was Bearish with a -70 QoQ Purchase Intent (PI) Signal and a -44 YoY PI Signal. To top it off, the company had historically performed very well on LikeFolio data, with a perfect 10.0 historical confidence rating.
But what do you do when the stock has already made a big move in the direction that the sheet is predicting? Such was the case with Tapestry (also known as Coach — $TPR):
As you can see in the chart above, $TPR had seen a major move lower in the 4 weeks between the end of their fiscal quarter and their earnings report date.
That’s why in the “LikeFolio Says…” comment section of the Sunday Earnings Sheet on $TPR, it says “Down big since fiscal quarter ended already… opportunity may be gone.”
Pre-release movement impact on your trade.
In the LikeFolio Purchase Intent Signal White Paper, we studied (in depth) the most effective way to play earnings reports. PI Signal is determined on the day the fiscal quarter ends.
What this means is that movement of the stock between the fiscal quarter end and the earnings date should be taken into account when evaluating your earnings trade, and your level of aggression for the play.
In the case of $TPR today after the earnings report, we are still getting a downward move on the report itself, but it’s muted because the stock has already sold off by 20% since the quarter’s end (partially in anticipation of a poor report.)
Of course, the opposite can happen as well… where a stock moves against the earnings call prior to the call, giving you a better than expected entry, and likely a more aggressive trading stance.
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