Stocks & Commodities V. 35:01 (24–26, 46): Earnings—Will Performance ‘Trump' Fundamentals? By Bani Arora

EarningsWill Performance Trump Fundamentals? By Bani Arora

You often base your trades on opinions, and those opinions can be wrong. Whats the best way to hedge your positions for those times when you could be wrong? Heres one way.

Company XYZ, the largest holding in your portfolio, is due to release earnings tomorrow. You open up your favorite charting software and focus all intellectual efforts on interweaving your technical analysis insights with historical nuggets of earnings information. You analyze your favorite indicators on charts spanning various time periods, flouting its defects and deviations from perfect order, ignoring the visual mischief that creates misleading signals, and celebrate your efforts when a buy signal appears as a triumphant symbol of your studies.

You are long the underlying stock and it is a tantalizing thought the company will meet, if not beat, Wall Street expectations and better still, spike up in price following the earnings release. But the impending unimagined adversities lead to unfavorable financials and the stock price takes a nosedive ...