Trader Toolkit: How To Make This Earnings Season A Merry One

With the ever-increasing number of trading platforms and the growing allure of low-to-no-fee brokerages, new traders are confronted with a deluge of options when it comes to trading and investing. But lost in the promises of sleek interfaces and free shares for signing up is the fact that successful trading takes time, practice and an understanding of resources experienced traders use on a daily basis.

Using the charts and tools available on the Webull trading app, which offers zero-commission trading and a suite of advanced trading analysis and charting, the Trader Toolkit series of articles will aim to explore the ratios, indicators and signals that play an integral role in how traders generate ideas and form convictions on their medium- or short-term trades. 

It’s the most wonderful time of the year. And unlike the other holidays, it happens four times over several weeks! 

That’s right, another earnings season is once again upon us. As of this writing, the major banks have kicked off the season in mixed fashion. Still, the results from the financial sector have been decent and investors have traded optimistically in the season’s early days.

That’s because these quarterly revenue numbers aren’t released into a vacuum. As mentioned in a previous trader toolkit article on analyst ratings, traders and market experts have certain expectations about what a company’s results should look like. Those expectations are ultimately what each company’s results are measured against. 

Whether or not a company beats or misses these estimates can have huge consequences, not just for the stock, but throughout its industry and the stock market as a whole. That’s why having a broad survey of how each company performed and whether they met expectations can help traders to formulate trading strategies around these successes or failures and anticipate future earnings outcomes.

Some trading platforms provide their users a breakdown of the recent earnings report results like the one shown below from zero-commission online broker Webull.

Image courtesy of Webull

The results above are filtered to include only those companies that exceeded earnings per share estimates. Each company listed also includes basic information about the report—the date of the release and which quarter the numbers correspond to—as well as more in-depth information about the percent to which the companies beat expectations and how the stock reacted following the results.

As mentioned, some financial institutions have managed to surprise to the upside. Bank of America Corporation BAC and The PNC Financial Services Group, Inc. PNC both reported positive surprises in their reports, which also translated into healthy move on the following market. However, First Horizon National Corporation FHN shares actually sold off after its bottom-line beat, which likely means there was additional information in the report that showed the institution’s business weakening in some way.

Another strong performer in the week was Industrial REIT Prologis, Inc. PLD, which delivered a nearly 48% EPS beat in its earnings report. This, coupled with the results from the banks, could suggest this might be an overall strong earnings season, since the real estate, industrial and financial sectors are all commonly used as a gauge of the economy's overall strength.

Of course, not all results were as successful, and a handful of companies have missed analyst expectations. Here’s that same earnings tool, this time filtered to show only those companies that fell short of the market’s expectations.

Image courtesy of Webull

EPS misses from legacy financial institutions like Goldman Sachs Group, Inc. GS and Wells Fargo & Company WFC ultimately had little effect on their final price in the following trading day, which may be another good sign for market bulls.

On top of that, transport company J.B. Hunt Transport Services, Inc. JBHT actually surged following its EPS miss, although this was another case in which additional information on the quarter allowed investors to overlook the blemish. Still, it bodes well for future shipping and manufacturing names.

Again, making inferences from this information can be a useful means of forming a trading thesis during earnings season. Since stocks are prone to move alongside one another, that leg up could mean the difference between a green earnings season and a blue one.

Webull is a content partner of Benzinga