Basis of the Earnings Predictions
The Earnings Predictions that are produced in our famous Sunday Earnings Sheet are derived from the Earnings Trading Strategy outlined in the LikeFolio White Paper: White Paper: LikeFolio Purchase Intent Strategies Performance Report – JUN 2018.pdf
The system in that study uses the Purchase Intent Signal to initiate trades entered on the last day of the fiscal quarter and exits the position on the first trading day after the company’s earnings announcement.
In other words, on the last trading day of the fiscal quarter, if the Purchase Intent Signal is positive and above the threshold, the stock is bought at the closing bell.
If the Purchase Intent Signal is negative and below the threshold, the stock is shorted. The position is exited at the closing price on the first trading day after the company’s earnings report.
This strategy produced stunning results, which can be found in the white paper link above. Most importantly, the strategy revealed that the stronger the PI SIGNAL is, the more profitable the resulting trade is expected to be!
How the Sunday Earnings Sheets are Different
Because most traders/investors simply cannot work through 100’s of stocks at fiscal quarter end, or hold 100 positions for 3-7 weeks at a time, our Sunday Earnings Sheets are delivered each Sunday during earnings season and cover the stocks reporting earnings in the week ahead.
This means that you’re getting the earnings sheet several weeks after the end of the company’s fiscal quarter. During the time between the end of the fiscal quarter and the Sunday earnings Sheet being delivered, the stock may have moved — perhaps a significant amount!
That’s why it is so important for you to recognize the importance of pre-earnings movement in the stock.
Bottom line: If, since the end of the company’s fiscal quarter (usually 3-6 weeks), the stock has moved significantly in direction anticipated by PI Signal, we would suggest reducing the conviction behind the signal….
BUT!!! If the stock has moved significantly in the opposite direction of the signal prior to the earnings report, the opportunity has grown significantly and our confidence in the earnings play is increased.
You will often notice recognition of pre-release movement in the “LikeFolio Says…” comments of the Sunday Earnings Sheet, indicating either increased or decreased confidence in the PI SIGNAL.