education

Earning Season or Exchange Reporting Period

The great majority of American public companies publish performance reports on their financial results for a quarter, six months, or a year at the same time. This calendar period is called reporting season or earning season. Quarterly reports are released in April, July, October, and January (for the 1st, 2nd, 3rd, and 4th quarter accordingly), half-yearly reports are released in July and January, and yearly ones – in January. Historically, the aluminium giant Alcoa (NYSE: AA) is the first to publish the report.

Results of each report may have a profound effect on the trade dynamics. The content of the reports is crucial for the traders who make intraday and long-term deals. During the earning season, the market volatility soars along with the number of earning opportunities.

Over the exchange reporting period, the most of traders have a maximum profit. The thing is that during the earning season, holders of large blocks of shares and institutional investment funds are engaged in assessment and reorganisation of their portfolios. This is accompanied by reporting companies’ share flow – players sell off shares with negative returns and buy more prospective shares which fell in price because of bad reports or were underestimated by the market. Also, they fix the profit from shares of the companies that released good reports.

The key data in each company’s financial report is operating incomes, revenues, and earning per share (EPS). Seeing these numbers, inexperienced investors may start following their emotions – from panic to euphoria – when making deals. Indeed, after the report is published, share price can breach both yearly and absolute price extremum. At this, the correlation between share prices of the companies that published their reports and the key Forex market indices is often missing.

It is impossible to track all reports during the earning season, as dozens of them are released in the market daily. To get profit, the following has to be done:

  1. In the reporting calendar, one should find shares of the companies which released their reports after the trade session closing and copy this data in one’s track list.
  2. If the shares were not traded on the post-market, most likely, they will not present much interest to an intraday trader at the next trade session. They should be removed from the list.
  3. After this, charts of the remaining shares should be assessed. If they are kept in a narrow price range for a long time, a possibility of positive price fluctuations of these shares is minimal. They are also removed.
  4. The next step is the analysis of share dynamics after the publication of the previous reports. If there was no trend and the traded volume is minimal, the shares present no interest.
  5. The final step is to define if the shares fit the trade system that you chose and if the expected movement in the current trade position will suffice for keeping the needed risk-profit ratio.

Only then it is appropriate to move on to the fundamental analysis of the companies remained in the list.