11 Minute Read

Tackle Today: Earnings Shocks!

August 9, 2022

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«Priced In or Pre-emptive Strike.»


This earnings season has been anything but uneventful. After watching some of the big boys fire out some earnings numbers there have been some pretty aggressive moves from both sides of the coin. It seems that if the number is missed, the companies have been punished and punished hard. An example of this is Verizon (VZ). They missed only slightly on their number and yet they were punished with a 12% drop. Of course, there is more to earnings than just the numbers, the outlook is usually just as important if not more so. It was the outlook that caused VZ to plummet and this is a natural part of earnings. One may say this is just a typical earnings season and that may be right but I would say that the reactions to this earnings season have been somewhat exaggerated in comparison to the more recent earnings seasons. In my opinion, this is not the most peculiar part of the current earnings season, the most interesting part is the pre-announcements that have come from some of the bigger companies.

Case in point would be Walmart (WMT). WMT pre-announced in late July that the upcoming earnings were not going to be as robust as they would have hoped and this caused an $11.00 gap to the downside. This is not an isolated incident as today NVDA did something similar and this not only gave NVDA a haircut but it also brought the sector to a screeching halt on the news.

The question that comes to mind is were these reactions priced into the market or are these moves warranted because of the changing expectations? I would say both things could be true, but the real curiosity is what is driving these pre-announcements? I don’t really know what is driving these announcements but I do know that sometimes it is better to get in front of bad news than it is to just let it happen and this is especially true on wall street as the markets seldom like uncertainty.

Regardless of why these pre-emptive strikes are coming out it re-enforces the need for good trading practices that can prevent these kinds of events from becoming disasters and that is good risk control through proper position sizing. If we are diligent with our position sizing then when these announcements happen, we won’t be at the risk of ruin.

Video Of The Day: How To Spot a Descending Triangle

In this video, Coach Noah shows how to identify a descending triangle chart pattern.

Chart of the Day: Walmart ($WMT)

Chart of the Day: Walmart ($WMT)

This chart of the WMT shows the gap at the end of July due to the pre-announcement from the company. This caused a sizeable gap and this could be detrimental to a trade if was overleveraged and this is where position sizing becomes important.

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