Stock prices going up BEFORE positive earninges report

[PierceAndPierce]

I've noticed that stock prices, for some stocks, start shooting up at around a week before a positive earnings report. I'm wondering, why is that? Is it because some investors are privy to information your average investor is unable to access? And if so, how can your average investor obtain information before the public release of an earnings report?

Perhaps this is a newbie question, and I apologize. I have only started to follow the stock market recently. But I'm curious to what you all feel.

I'm basing this observation on the Daimler Chrysler DG (DCX) stock, though I've been seeing the trend for several other stocks who have released positive earnings reports as well.

[hawk59]

It's always possible that people can be trading on inside info but it's very unlikely. Stocks are always moving around, so if a positive earnings report is released there's a decent chance the stock went up in the prior weeks just by a coincidence. And also, people might buy the stock HOPING the earnings report will be good, but this is different than actually having inside info.

[PierceAndPierce]

Thanks Hawk59.

Now that you mentioned it, is buying a stock before the release of an earnings report a viable strategy?

[leto333]

It is commonplace to trade a stock on the idea of it running up into earnings, just as it is common to short a stock after earnings, particularly stocks that have had very good run ups going into earnings.

Buy the rumor, sell the news is the applicable cliche I believe.

[Groty]

The largest mutual and hedge funds have teams of research analysts who are constantly in contact with the customers, suppliers and competitors of the companies they follow. If they've talked to enough people, they have a pretty good idea of how the business tracked relative to consensus estimates/guidance for the quarter and position their portfolio appropriately. They also sometimes retain industry specific market research firms who do the legwork for them. Anything for an edge.

Also, if they place the orders with an institutional executing broker, to maximize his commissions that broker might call other clients he thinks have an interest in that particular stock and say he's seeing order flow in the name. That can cause additonal buy/sell pressure and move the price.

[eastbay]

As Groty points out, it doesn't necessarily require illegal inside info to be able to make informed high probability guesses about earnings reports to try to lead the move that will follow.

eastbay

[hawk59]

And IMO trading based on where you think 3 months of results will be compared to what other people have said they think 3 months of results will be is not the game you should be playing.

[adios]

[ QUOTE ]
It is commonplace to trade a stock on the idea of it running up into earnings, just as it is common to short a stock after earnings, particularly stocks that have had very good run ups going into earnings.

Buy the rumor, sell the news is the applicable cliche I believe.

[/ QUOTE ]

Yep earnings runs and divvy runs (stocks run up before the dividend is paid) seem to happen and many people trade accordingly.

[lastsamurai]

MSFT in the 90's and 80's use to do this. Mr gates use to say they are "comfortable" with the estimates before the numbers came out. I miss the 90's

[leto333]

If you mean buying a stock in anticipation of a good report because it is running up prior to the report? No, that is russian roullette, no one knows which way a stock is going to break on an earnings report, you should never hold a stock through an earnings report unless you are a long term investor.

You can do spread plays on that if you feel the price movement will be big enough to justify all the transaction costs of the spread, but that is a whole nother thing.

The best way to play an earnings run is to wait during the quarter for the uptrending stock to hit a low, this might be a week after earnings announcement, it might be a month after, and you want the low to be put in on due to broader market pressure, the whole index is down and your stock is suffering from that, if its hitting a low due to news specific to it, such as its ceo is arrested for cooking the books, its not a valid candidate. You can use bollinger bands, or trend lines(20, 30, or 50 day) to determine when the thing is hitting a low, or if its trading kinda flat, you can use a price point that it has touched and bounced up from several times before. using these areas allows you to know quickly when you are wrong and therefore reduce the cost to you of finding out if you are wrong, if they penetrate these entry points, you should be stopped out for a loss and you can move on to other candidates you are watching or continue to see if the stock will offer you another opportunity to enter at a low risk point.

It is not a strategy you want to try to execute without a lot of practice and a full understanding of what you are doing, which this post does not provide.