How to Play a Post-Earnings Move
by Chris Johnson and Jon Lewis 11/18/09
Free Trading Guides
What about more recent earnings plays?
Well, look at Salesforce.com (CRM), which reported solid numbers after Tuesday's close. The shares pulled back sharply to their 20-day moving average and are now rebounding higher.
Or how about Home Depot (HD)? It beat earnings by five cents and issued upside guidance on Tuesday. But the outlook wasn't quite up to snuff (according to analysts) and the stock dropped nearly 5% that day at its low. But that brought the shares close to their 20-day moving average. Wednesday, HD traded more than 3% above Tuesday's low.
Earnings plays aren't just about deciphering what a stock will do after earnings. Sometimes it's best to get earnings out of the way, and then jump aboard after the market overreacts to a small tidbit of news.
More often than not, the stock price will rebound once the market figures out that it may have treated the shares a tad too harshly.
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