Earning hits and misses...
Monday, October 30, 2006 at 07:22PM For those that have followed us for the last few years, we have written numerous times about how we just do not like the probability of holding through earning. If this is year 1999, we'd probably be buying calls left and right in front of the earning. This is 2006 and we think that trading environment has changed a lot since the hay days. The conclusion is that it is almost rare these days that a stock gaps up after an earning report but frequently the stock gaps down on any slight disappointment out of a report. Of course, we are using DIVX as an example to illustrate our point as there seems to be some confusion over the earning reaction tonight.
On Friday morning, we noted that DIVX was acting really well a day ahead of its earning report and we thought it could pull a RVBD. What we meant by that was the fact RVBD rallied over two points right before its earning report. We thought DIVX could pull a similar move given its connection with google. Then the infamous Goldman call hits and basically the whole market got dragged down and particularly the tech sector. So the "rally ahead of earning" play never materialized for us. Fortunately the stock did perk up late today to provide us still a nice exit point ahead of the earning. So what happened to the stock in AH? We think it's obvious that the stock's earning did not meet expectation. We will not get into the debate of what should be the expected growth number or how much this stock should be worth... etc. The fact that the stock is down quite bit in AH gives us a pretty good reason to stay away, and to move on. If this stock comes back and try to attack the old high down the road, we'd be there. For now, there's plenty of other action that is keeping us busy.
UCTT, so we found out who that seller of the 1.8 million block is and stock rallied. We are encouraged by its action and think it's just a matter of time before it goes much higher.
RIMM, ah ha, the GS call should not and is not affecting this blackberry monster. This one is approaching to be a good winner here.
The "A" Team, APLX, AMIE, ALB, AXR all exhibiting unusual strength today and in fact three of the four logged new high today.
GROW/IAAC, love it or hate it, these are two good stocks to trade and bias is on the long side.
We are almost done with October and we are very much looking forward to the the month of November. There's historically some strong action in this month and we hope it's no different this time around. Having said that, we are still going to be looking for the best of the best kind of earning setup and won't get carried away chasing any and every gap ups.
cheers,
Demi/ YourPersonalTrader
If you're wondering about the origin of The A-Team, ALB was mentioned in MC as something we'd rather have than AAPL the day after these reported. AMIE,APLX premarket in the extended trading section last week. AXR is one most know from IBD that was a recent high flyer. There are other names we have left up so you can build a list of stocks to watch/trade coming off quality earnings this Q. It pays on days like today.