Yesterday, we previewed Alphabet’s major quarterly earnings announcement (NASDAQ
Alphabet posted an earnings beat, turning in $9.93 EPS, solidly above analyst expectations of $9.21. Our most recent data on FB earnings announcements suggested beats could lead to a bounce in excess of 4%. Indeed, GOOGL surged after the earnings announcement, jumping out to gains that topped out around 5.2%. The market has rapidly shifted, however, with Google suffering steep losses headed into today’s trading (along with markets at large).
These nice profits followed by a sharp pullback are a powerful reminder that “the news never stops.” The positive momentum created by a news event can quickly shift if new narratives begin affecting the stock in question. News-based trading approaches need quantitative data to hit the right entry and exit points and maximize profits. Investors who bought Alphabet on a “buy-and-hold” approach are already in the red amidst today’s pullback. NQ users, meanwhile, could see that average gains from past Google earnings
If you’d like to learn more about how corporate earnings announcements work, and how they can be profited on with news-based trading systems, check out our totally free guide to earnings-news trading using the button below:
Earnings for another tech behemoth, Facebook, are due out at the close of trading today. With Facebook’s trading already volatile in the wake of the Cambridge Analytica scandal, the earnings announcement could generate some serious price action.
Our last news alert for FB earnings (Q4, 2017 – announced this January) saw solid gains of 2.8% after a decent earnings beat by Facebook.
NewsQuantified’s data on market reactions to earnings news runs far deeper than the most recent announcement, however.
A look at the last four FB earnings announcements reveals a more nuanced market reaction than to GOOGL. Facebook has posted beats in all 4 of it last quarters, but 2 of the beats resulted in same day price declines. This behavior suggests that traders may have had very high expectations for FB going into recent earnings announcements: narrow beats were treated like misses.
We can also use NQ to look at longer-term data. Our system provides average gains from earnings beats/losses for every stock in our database; these averages can be calculated over various hold times.
For Facebook, the average 1-day gain over the past 23 “Beat” announcements was 3.3%. These gains faded with each successive day after the announcement, suggesting a 1-day hold time for playing the Beat on Facebook.
Facebook has recently had a record of relatively conservative earnings projections: there is only one Miss in the recent sample. Facebook actually gained in the 1-day aftermath of the miss (perhaps representing “buy the dip” behavior on a still-hot stock). This miss, however, faded into the expected losses around the 3-day mark. Traders looking to short a potential miss may want to consider a multi-day hold time to wait out any dip-buying behavior from FB enthusiasts: losses were closing in on 5% by the 5-day marks of the last Miss.
Keep checking in with the NewsQuantified blog as we continue to focus on earnings trading this week. Tomorrow, we’ll analyze the aftermath of FB earnings. Thursday, we’ll explore earnings-news trading strategy in more depth.