Monday, July 27, 2015

$BIIB Dropped 22%! Here's Why I Don't Trade Earnings

Being In Cash Makes Sense


Last week I couldn't find a single stock for my watch list!  There were a few candidates I had my eye on but ultimately. earnings got in the way.  Earnings is just one of the variables included in my funnel method for selecting stocks.  


Some people live and die by earnings but in my experience, even good stocks with strong fundamentals can plummet as a result of earnings so I just steer clear until the dust has settled.  Case in point - $CNC, $ILMN, and $UTHR  dropped by as much as -6% to -8% while $BIIB dropped -22% overnight! 



There's a Storm Brewing



With the price of commodities (oil, silver, gold, copper etc) falling as of Sept of 2014, I'm concerned that the global lack of demand is hitting again.  China has lowered irs consumption of certain commodities and that directly impacts Canada, who just happens to be one of our strongest trading partners in the world.  Facing a decline in demand for their resources, Canada's currency is down by 30% from an all time high 4 years ago.


Looking closer to home, I also see that the worst sectors in US are Materials ($XLB), Industrials ($XLI) and Energy ($XLE).  Adding to that, all 3 sectors are getting down to their all time lows. Companies in these sectors are multinationals and with a strong dollar, it doesn't bode well for companies that are going to be reporting earnings in the next two weeks. 



Current Market Outlook




We had a market "Follow Through" day only 5 sessions ago when the Greeks finally agreed to bailout terms with the European Central Bank.  When I look at the major indices ($SPY,$DJX) I see similarities to the beginning of March 2015 when the market rolled over for a -4% loss within 2 weeks.  July of 2014 was pretty brutal too and with just a handful of stocks driving the market right now, there's a lot of risk on the table.




What Survived My Funnel?



The health care sector is still strong but some stocks in this sector are showing signs that institutions have maxed out.  Things are a bit better this week but it's still slim pickings:


$AMBA

$VRX
$CELG


This is no time for heroics.  Most of the growth stocks in health care have already made their gains over the past few years. I will definitely wait for at two days before I make a major commitment to trading any stocks. 


It's always better to allow stocks to retrace and enter when they're closer to their buy point.  I'm also looking at ways to reduce my risk such as taking a small position and utilizing conservative option trades


Happy trading!







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