How to play ER on Highly Controversial Loser (2): Example

You have read the first part of the theory, and you may have questions on how it works. I am going to walk you through one of the recent examples in this second post.

PLXS: April 25th

PLXS is one of my value investing picks @17, and it has been a highly distressed stock in earning downtrend, and has been under margin pressure.
I found this pick using my value searching criteria, such as P/S ratio, strong balance sheet and previous strong ROIC. I believed it is an interesting turnaround play. However, if you check the 1 yr graph, it looks like a big loser. When more and more value investors find this, it becomes a highly controversial loser.

To make it even more controversial, fool.com recommended this stock in one of their most expensive newsletter after I found it (I got to know this reading yahoo message board). That makes it even more interesting.

Actually after I found it, it dropped further to 15.xx. But I didn't load then. Instead I loaded at 16.5 when I clearly saw the end of the downtrend.

The Pre-ER run happened as expected from 16.xx-->19.xx. It was nice sure money swing and I sold before ER.

The ER itself is actually good. 23c vs analyst's estimate of 17c.
However if you see title in newswire like this :
"Its fiscal second-quarter profit fell 45 percent"
Under-informed panic sale actually sent its price in after hour further down to 18.3(I had a chance to load there, but I didn't.)

Now think about this: the earning decline is already fully priced-in, it is already in a turnaround mode. How efficient the market is at their first response to the news. This was a great opportunities for prepared mind.

The second day's market turned out as expected, gap up, and strong momentum running up until overshoot. Overshooting is almost always a component in Post-ER momentum on HCL, that's why it is a DT opportunity.

So this is the story of PLXS. Today's JRCC has exactly the same story and Post-ER momentum is strong despite the increased loss compared to a year before (that is also already priced-in). Market is always looking forward, expecting a coal market to come back.

I am going to collect more such ER story on HCL to show you why there are so many opportunities for sure(high winning probability) money play before/after ER on such highly controversial loser picks. Once you see those many opportunities with very little risk, you will have no interest in betting on hope, such as option bet before DNDN's FDA decision. Instead you will do it after the FDA results are released,and you will have plenty of time to play the post momentum.

The next major ER I am watching is OVTI @May 31th. Tomorrow we will also see PRS.(however it is undercovered, not that controversial). We may have a post-ER swing opportunity if the ER is really good.