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How To Trade Earnings Season


Over the next week or so, we will see quite a few significant energy companies’ Q1 earnings reports, culminating in the big two, Exxon Mobil (XOM) and Chevron (CVX), who will report on Friday, April 27th. Earnings season is in full swing and at that time each quarter, one of the questions that I am most frequently asked by retail investors is how best to handle it. Now seems like a good time to talk about just that.

When I tell people the answer to their questions about a strategy for earnings season, they are usually not happy. That is because, in most cases, the best strategy is to essentially ignore it. Don’t react to the numbers. Let the dust settle, then reassess any positions you might have in the light of the new information gleaned. It is always tempting to try to react to news, but if you are a long-term investor whose holding period is measured in years rather than minutes or hours, you should be more concerned about trends, strategy, and the execution of that strategy than any one quarter’s results. Even if you are a trader with a good setup, the chances of you reacting to an obvious beat or miss before institutional desk traders is basically zero. Trying to do that means that you are late to the party, and your trade just gives them an opportunity to close out their trades.

That said, though, there are some things in earnings reports that do have a bearing on the long-term outlook and that should be analyzed. Most notable among them is the forward guidance…

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