Earnings are Stealing the Spotlight from the Presidential Election

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The Presidential Election is happening soon. Early voting began Wednesday, Oct. 16, and runs through Thursday, Oct. 31. The general election is on Tuesday, Nov. 5.

One would think that is the only thing on everyone’s mind, but nope, that isn’t the only thing as earnings for companies in the S&P 500 is upon us for another quarter. We are in the early stage of 3rd quarter earnings reporting.

One source of earnings data I like to pour over each quarter is the data updates from an author from FactSet, John Butters.

To summarize a latest update from him, right now things are off to a mixed start. Of the roughly 14% of companies that have reported their results, 79% are showing a surpassing of their EPS estimate. This is slightly above the 5- and 10-year averages. Earnings growth, while positive, is at its slowest pace since the 2nd quarter of 2023.

Overall, blended earnings growth rate for Q3 2024 is currently 3.4%. This marks the fifth consecutive quarter of year-over-year earnings growth. Note it is primarily driven by sectors like IT and Communication Services, while Energy continues to experience a decline.

I am going to focus on scanning for options trading candidates in my Tools and Observation section of this newsletter.

Market in Focus: SPDR Dow Jones Industrial Average ETF Trust – DIA

This ETF is also referred to as the DIAmonds.

It is the tracking ETF as I call it due to the goal of the ETF is to track or replicate the returns of the Dow Jones Industrial Average, (DJIA).

Technically, it looks like an ascending support line was broken and may go lower. McDonald’s was a sore spot for the Dow today. We will see if this is a false breakdown, and the Dow recovers as more of its components come out with more positive news and earnings.

Tools and Observations – Earnings Scanner for Options Trading

Beings that we are in the front end of 3rd quarter earnings reporting season I thought it best for me to give a quick heads up on how to use a scanning tool of mine to find options trading candidates in and around earnings season.

A common misconception about earnings is ‘You can’t predict where a stock will move.’ 

I’ll give you that you can’t know with certainty what will happen to a stock at any time… especially on their earnings announcement. 

You all know me as America’s Pattern Trader. I use patterns in virtually all my analysis of securities for option trading.

One thing I am confident of is that one can trade – and profit – on the expectation of where a stock will move, thanks to one thing: its earnings pattern.

What I look for is ‘how has a stock has performed over the past four earnings quarters.’

There are a lot of sites out there, like Earnings Whispers and TipRanks, where you can search all upcoming earnings dates, analyst expectations, and previous earnings for free.

A friend, colleague and instructor of mine, Mike Wade has put together an online training program where over 6 weeks online he teaches a process of analysis and use of scans to then employ options trading strategies on those stocks he finds repeatable ‘earnings patterns’ on so he can go after profits on these setups.

I call it my Earnings Mastery Course.

Discover Earnings Mastery

The most predictable and reliable patterns in trading result from earnings announcements. The Earnings Mastery Series is focused on teaching how to utilize a number of high-probability strategies for taking advantage of these earnings patterns. These patterns provide opportunities to profit from IV Surge as well as the anticipated stock price move before and after the announcement. In addition, you will learn how to profit in volatile market conditions using straddles, profiting if the stock moves anywhere.

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An example of a scan results page from one of the scans used in that Mastery Course and produced by my software at www.tomsoptiontools.com is below:

This scan can provides many useful criteria for the options trader, such as winning percentage. You can see two stocks who have had 4 positive earnings wins in a row, like Applied Materials (AMAT) and Tesla Motors Inc. (TSLA).

The objective is to find stocks like these with this repeating pattern and trade around earnings so that you can pinpoint your optimal trade exits and entries.

After you run your search, you’ll want to pay attention to a few things in particular:

1. The number of earnings periods analyzed
2. The estimated number of days until the next earnings report
3. The actual number of times a stock has met or did better that their earnings expectations

Earnings and the Options Trader

As an options trader, you’ll want to analyze how a stock has done in past earnings reports when you’re trading around earnings.

Consider a Long-Put option strategy if you see that a company has a history of missing its earnings expectation or has a history of forecasting low earnings numbers in future quarters.

Consider a Long Call option strategy if you see that a company has consistently beat its earnings expectations and has a history of forecasting high earnings numbers in future quarters.

One can also consider a Long Straddle option strategy or an Iron Condor strategy, but that is a discussion for a later day OR best discussed when one is immersed in the study of an Earnings Mastery Course.

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