Candlestick Trading Blog
March 12, 2010
Anticipated Earnings
| In projecting how a company will perform in the coming months or even years its officers will estimate the company’s anticipated earnings. Anticipated earnings are based upon expected consumer demand, ability to price effectively, and success in controlling costs. The basics of stock market investing such as fundamental analysis include using earnings projections in helping investors in picking stocks. Anticipated earnings are basic stock information along with the price to earnings ratio, Candlestick chart formations, and a stock’s dividend yield. Long term investing based upon stock fundamental analysis will rely much more heavily on anticipated earnings than does day trading. This is because the trader steeped in Candlestick basics knows that the market can tell traders what it will do for those using Candlestick analysis. Value stock investing is particularly interested in what the future will bring for a company as this type of stock investing seeks to buy shares in stocks that are currently undervalued. The value investor does not really care why the technical traders are undervaluing a stock. He or she knows that the stock is likely to out perform the market in months and years to come during which time its stock price will appreciate substantially. The day trader lives and dies by technical analysis charts such as Candlestick stock charts. He or she knows that the market has typically figured everything that it knows into the current stock price. The long term investor is equally sure that few investors or traders have picked up on his information derived from company and market analysis. In reality both day trader and long term value investor are correct. The trader is more interested in short term movement which is driven by current information. The long term investor is patient and can wait a month or a year for a stock to turn around, for a new product to come to market, for a company to get its costs in line with sales, and for new management to take an old company with strong assets in a new direction. Anticipated earnings for a company can be improved by showing that a company can find and successfully market new products. They can be improved if companies demonstrate that they can find new business in new market sectors thus enlarging their markets. Anticipated earnings are very commonly expected to improve with workforce cutbacks. This is a common action taken by companies in financial trouble. The long term problem in industries that require strong skill sets is that cutting trained staff requires hiring new workers later, training them and waiting for their skills to mature. Often an effective means of dealing with promising earnings estimates is to buy options. A long straddle option is useful in that it allows the options trader to profit from either an increase or a decrease in stock price. The trader exercises this options strategy by buying calls and buying puts on the same stock for the same expiration date. If the stock does not move in price he or she is out the premiums paid. If earnings estimates are correct the stock price will go up and the call will pay off. If the estimates are dead wrong the stock price will go down and the put will pay off. It is all in how anticipated earnings turn out. Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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