12 Keys to Trading Earnings for Profits

• «
• »

#11 Putting It All Together

At this point, it should be clear that sentiment is a crucial ingredient to analyzing a stock.  So how do you combine sentiment, technicals and fundamentals within our behavioral analysis framework to pick a  winning earnings play? 

For bullish trades, look for stocks in uptrends with strong fundamentals (e.g., strong earnings growth or new product innovations) that are the target of negative sentiment. 

Of course, you have to understand that the indicators will rarely all line up the same way and that stocks behave differently given a particular sentiment environment.  It's the job of the "behavioral analyst" (you) to distinguish the relative level of sentiment based on the tools above and then compare the strength of the contrary indicator to the stock's technical strength and fundamental health. 

Keep in mind that behavioral valuation works on the bearish side as well.  Weak technicals (running into a declining 50-day moving average) and fundamentals peppered with optimistic sentiment is a bearish combination.  It's only when pessimism reaches an extreme and most everyone has thrown in the towel that a tradable bottom can be formed.

Knowing what investors are doing with their money and what their expectations are ahead of earnings allows us to form an assessment of the downside risk vs. upside risk.  And it allows us to make highly accurate bullish or bearish recommendations for stocks ahead of their earnings reports.

Lookng for image…will let you know.