trading around results

[fundjunkie]

Hi,
Yesterday a small cap in America issued good quarterly results after market close. The stock rose about 10% right at the end of the day as those in the know bought shares.

I'm thinking about buying these shares based on the results posted but am expecting the share to gap higher. Is it wise to place a stock order when you expect the shares to gap higher? Or should I wait and see how the market reacts after opening risking that the share will take off and I'll miss the move.

Maybe I should wait to see if the share starts trending in the aftermath of any post results volume spikes? All viewpoints are welcome and appreciated.


Thanx,
D

 

[Rainmaker]

such trading can be risky! better to wait for a pull-back when the mugs have bought and the hot money has moved out. from my experience, after a pause, these kinds of shares establish an uptrend.

 

[Trader333]

If the stock has risen already there is just as much possibility that people will sell now and cause it to gap down. It is extremely risky to try and predict the reaction of a stock to good and bad news. I have seen time and again the opposite of what people expected. I would wait until the open and decide then what to do and even if you are right on this occasion you can easily find that next time you wont be.


Paul

 

[tomorton]

I agree - wait for the open fundjunkie.

I have had some good successes trading results, especially small caps, making 4 figure profits in the first few hours several times, never big losses. Buying the day before though is a real risk - lots of examples but look back a year or two to John Laing's price action day results were released - I think it was a 48% fall over the day. Very often prices are marked down before the open, so you cant get out without damage anyway.

 

[hagadol]

What do you mean by "Marked Down Before Open"

 

[TheBramble]

Hag - there's alot of 'play' before the market opens and in the first 30 minutes or so where mug punters get taken at their pre-market orders.

You might miss one or two good trades of this type, but on balance, you'll more often than not get shafted trying to factor in what you think the stock's going to do before it does it.

Far better (on average) to let it do what it's going to do and then decide how (and if) you want to play it.

 

[tomorton]

Small cap stocks are traded via market makers and they are free to set whatever price they like. If they see the results at 7am and see e.g. profits well below expectations, they'll probably mark the price down, so you have no chance to get out at last night's closing price - when the market opens, the first deal you'll be ofered could be well below last night's price. They don't have to offer to buy shares at last night's price.

Of course, the reverse also holds true, prices can be marked up before the open on good results so if you're holding, you can find you're into profit before breakfast, but there's no need to take such a risk. Usually, if prices are up - on results - at 0830, they normally stay up or go higher the rest of the day and the next day before falling back the day after that. They could even then resume an upward move subsequently, but my point is there is always time to get in after the results come out.