This is my quarterly post that I publish at the beginning of every earnings season. It is as much a reminder to myself as it is to you.
With Alcoa officially kicking off another earnings season tonight after the closing bell, consider this a friendly reminder to check and then double-check your current portfolio holdings to see when they are scheduled to announce. As a relatively short term swing trader, I am almost always looking to significantly reduce or outright close a position into earnings. There are simply too many variables for me to have an edge.
Even if you have illegal inside information about what a particular firm’s earnings will precisely be (and would thus face the distinct possibility of winding up in a federal pound-me-in-the-ass prison, with no conjugal visits) there is still no way to know how the market will react. Stocks can just as easily sell-off on great earnings as they can on horrific ones, and vice-versa.
Technical analysis has its clear limitations in that it can only demonstrate what is currently known and knowable by the markets. To presume that charts can dictate everything into the future is pure folly. Trading IS gambling, as we are wagering on outcomes yet to be determined. Instead of running away from that fact, a better approach is to embrace sound risk management.
In sum, leave the heroic all-in bets on an earnings play to old men trying to recreate their youth as they imagine themselves as Steve McQueen in The Cincinnati Kid. For those of you who have seen that movie, they will likely face the same fate as McQueen’s character did in the end as well.