Tuesday, May 8, 2007

How to play ER on Highly Controversial Loser (1): Theory

To Sell or not?
To Buy or not?

It is a question every player is going to ask before an earning release.
Especailly on highly controversial losers we are mainly talking about here in this blog, it is a big question.

My answer is, play it before, play it after, just don't bet the ER.

The reason and logic is clear and consistent with all my trading/investing decisions:
Pick Sure Money, Don't Bet on Hope.

Pre-ER run is a typical swing opportunity for HCL, the reason I have explained in DT or Swing
to summarize, you profit on long's hope and short's fear. This is very nice and high probability money, and the more controversial, the bigger loser the better.

Post-ER run is a typical DT opportunity. the reasons I have explained in this post
to summarize, you profit on the removal of uncertainty, the uncertainty removal itself will generate huge inbalance of sentiment, once the balance of sentiment is broken, price movement momentum will follow, either up or down. The degree of momentum is associated with the degree of expectation, which comes back exactly to the same logic: the more controversial the better, the bigger loser(this is for up side momentum, for downside momentum you should check the degree of pre-ER run and expectation build-up) the better.

Since we are talking about ER play, here I assume that you are a trader. For investor, no such ER play thing at all. After ER/CC, when more information is available to you, you can make futher investing decision.

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