The reporting period is a great opportunity for those traders who know how to take advantage of this period and to maximize their profits. Many traders pay so much attention to the overall content and the plenty of issued reports, thus to understand how’s the situation in companies and how consistent are reporting results with analysts’ expectations.
While the most of the companies (particularly, the market leaders) feel pretty good in this period due to the possibility of increasing their sales and profits, the traders feel more confident about the market’s future. On the other hand, when the reports are issued under traders’ expectations, it can be a warning of problems.
When it starts?
The reporting period can make few weeks and takes four times per year. At this time, most American corporations issue reports about their income and sales for the past quarter. Usually, the reporting season means the months immediately following the end of each quarter. That is, the duration of such periods starts in January, April, July and October.
There are three most important aspects of reporting period and the traders should pay attention to them:
The surprise of a company’s report: it is considered to be a significant difference between the issued report and the analysts’ expectations. Surprise can be good news or bad news and is showing huge impact on the behavior of stocks that can lead to the beginning of a large raise or lower trend.
So during this period try to pay attention to whether the majority of the reports are positive or negative. If the most of surprises have a positive value, it is considered the things are going well and there is a bullish signal for the broad stock market. If the surprise is negative, the price of company’s stock can fall quickly and a lower trend could begin. Usually, such a negative report can scare the investors and make them to reduce their positions. This situation may lead to a temporary weakening of the stock exchange.
The leaders: at a certain moment of time, some of companies are considered “leaders” on financial market. In this case, you can state that if a company that is considered leader shows a healthy growth, it is a good sign for the economy and for the stock market. But if the leader’s results are worse than experts’ expectations, that is a signal for traders about future problems on market.
The overall results related to the general expectations: many analysts spend a lot of time to assess how well the profit and sales figures in a particular company or an entire industry. Therefore, when the reporting period begins, a huge number of investors already have guidance on how the total profit should look like. If the actual results of the total profit to meet or exceed expectations, it is a sign of improved market conditions. And vice-versa: if the profit of this period show unsatisfactory results, this may lead to bag results for the investors for at least the next quarter.
The growth of the profit and sales is the key factor that influences the perception of stocks price by traders. Many traders are looking forward for the reporting period, but be aware that perceptions may materialize in the stock market. Therefore, regardless of the time frame in which you trade, you should pay attention to overall trends in earnings per share declared in the reporting period, as well as the total profit growth.