CINCINNATI, July 10, 2007 (PRIME NEWSWIRE) -- The week of July 9 serves as the traditional start of the Q2 earnings season. As many investors know, earnings season provides one of the best opportunities to capitalize on profit opportunities as earnings announcements are the most widely traded event at the company level. "Since earnings dates are a known event the investor that is willing to do the extra work will find ample opportunity to find extraordinary gains," says Chris Johnson, Chief Investment Strategist at Johnson Research Group in Cincinnati Ohio.
"The average investor is often a spectator during earnings season, meaning that they miss a wealth of profit opportunities presented. Most often it is the professional traders that benefit from the large moves," says Johnson.
So outside of knowing that trading opportunities pick up during earnings, investors need to ask themselves, "How can I benefit from earnings season?" Johnson adds, "Following our Behavioral Analysis Rules of Engagement during earnings season and following our Earnings Tip Sheets, available at Johnsonrg.com, provides all investors with a trading edge through earnings season."
Johnson Research Group specializes in a unique form of proprietary analysis called Behavioral Valuation(tm). This unique approach is deeply rooted in the science of analyzing investor expectations and their implications based on quantified historical testing. "Our approach becomes especially effective during earnings season as the investor expectations become poignantly clear on stocks," said Johnson.
Why is this? Johnson continues, "Well, I like to dissect daily option volume, price, and other data points that reflect investors' ambitions for stocks. The fact that the volume of this activity increases around earnings means that the "read" or outlook based on this analysis becomes more robust. Those familiar with statistics can view earnings season as a period that offers more samples, meaning that study results become more reliable."
What should investors look for as earnings approach?
We are always watching for signs that investor expectations are rising ahead of earnings as a sign that a stock may be at risk of the "sell the news" crowd stepping in after earnings are released. Avoid such situations, because these stocks are likely priced for these high expectations and won't gain much on a positive earnings surprise.
Typically, the situation to look for is a strong earnings report when investors have low expectations. Usually these stocks rally more than average, as the low-expectation crowd bid the price up in a scramble to jump aboard the stock.
Johnson Research provides a number of tips for earnings season investing to their clients. Here's a sample from their list of "behavioral rules" to remember during earnings season. Write these down and refer to them regularly, as they have stood the test of time when it comes to investing during earnings season.
1. Avoid the temptation of running with the crowd. The crowd tends to get whipped into a frenzy ahead of an earnings announcement, as investors buy in based on overly positive expectations. This means that the stock's price reflects ambitious expectations, which are often difficult to meet. Under such circumstances, a stock that reports positive earnings is more likely to sell off due to its bloated "behavioral value."
2. Look for the under-appreciated opportunities. Keep an eye on companies with low expectations headed into earnings (increased put buying or short interest are a couple of keys). Keeping with the same mindset in rule number one, low expectations are easily beat and investors tend to flock to such stocks once they realize that a buying opportunity awaits (of course, you've already got your seat on the bandwagon).
Investors that are interested in benefiting from Johnson Research Group's Behavioral Valuation approach during this quarter's earnings season can do so by following the company's weekly Earnings Tip Sheets. "Our Tip Sheets provide investors with a short list of stocks that match bullish or bearish criteria headed into their respective earnings announcements." Chris adds, "These are typically the stocks that you read about making dramatic moves after their announcement, we just try to get there before the crowd."
For more information and to read about Behavioral Valuation and Johnson Research Group's Earnings Tip Sheets, visit Johnson Research Group at http://www.johnsonrg.com
About Chris Johnson
Before starting Johnson Research Group LLC, Chris worked in the financial services industry as a broker for 11 years and eight years as Director of Quantitative Analysis and Market Strategist with Schaeffer's Investment Research. Through this work, Chris became an expert at quantifying and studying the behavior of investors and financial markets, market sectors, and indices. Along the way, Chris has developed numerous market analysis tools that harness the powerful combination of behavioral and technical analysis.
Chris is a contributor to the company's website and frequent commentator on financial markets and is regularly seen in national print media, such as Barron's, Wall Street Journal, Financial Times, Bloomberg, USA Today, and the AP Newswire. In addition to being a guest on several radio shows, Chris appears regularly on CNBC, Bloomberg TV, and the Fox News Channel as an expert in the field of sentiment and investor behavior as well as technical analysis.
For more information about Chris Johnson, or to set up an interview, please contact Mr. Johnson at 513-373-4317 or visit www.johnsonrg.com.