Should You Buy a Stock Before the Earnings Report?
It is common for stocks to enter a quiet trading period ahead of earnings because the BIGs are waiting for the next earnings report before committing more capital (or less). Volume tends to decline, and a stock may enter a consolidation pattern.
For this reason, it is usually better to avoid buying stock shares before the earnings report (exception: option traders can use strategies that allow them to capitalize on price volatility, especially gaps).
Pro Tip: Find earnings report dates at any of the major financial sites (FinViz.com, Finance.Yahoo.com, Nasdaq.com, etc.). In the listing, remember that BMO stands for “before market open” and AMC means “after market close.” If a stock reports BMO, it will gap up at the session open. If listed as AMC, a gap up would occur on the “following day.”
Here are some general guidelines to consider:
• Generally, don't buy the stock within a month of the earnings report. If you do, buy fewer shares, and only if the price action is very positive.
• Consider option strategies instead of buying shares outright.
• Consider buying “earnings gaps” that may occur as earnings are released, especially if the stock makes a new 52-week high and volume is very high.
• Generally, avoid being influenced by earnings estimates, opinions, and predictions by market gurus. Instead, watch how the market reacts to the earnings report.
Below is an example of the earnings date for Starbucks (SBUX) from FinViz.com. It's free, but I subscribe to the Elite service for my fundamental research.
