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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Good Earnings Surprise

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Market
Industrials (^DJI):
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Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 02/24/2017
20,822 11.44 0.1%
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21,150 or 20,000 by 03/15/2017
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Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

For more information on this pattern, read Encyclopedia of Chart Patterns Second EditionEncyclopedia of Chart Patterns 2nd Edition book., pictured on the right, pages 868 to 879.

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A good earnings surprise is an event pattern in which a company issues an earnings announcement and the market interprets it as better than expected. But, almost half peak after rising 10% in less than 2 weeks. Discovered by Thomas Bulkowski in the fall of 2003.

 

A good earnings event pattern

The Ideal Good Earnings Event Pattern

Important Bull Market Results for the Good Earnings Surprise

Overall performance rank (1 is best): 5 out of 6
Break even failure rate: 29%
Average rise: 24%
Throwback rate: 41%
Percentage meeting price target: 76%

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

Good Earnings Surprise Identification Guidelines

CharacteristicDiscussion
Price trendUpward leading to the announcement for the best performance.
MarketThis event pattern works best in a bull market.
AnnouncementThe company announces earnings and the stock makes a large upward move that day or the next if the market was closed.
Tall swingLook for announcements in which price makes a large intraday price swing, 2 or 3 times the average daily intraday price range over the last month.
Yearly lowFor best performance, select announcements that occur within a third of the yearly low, just make sure price is trending upward.
Upward breakoutA breakout occurs when price closes above the high posted on the announcement day.
VolumeSelect patterns with heavy announcement day volume, above the 30-day average.
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Good Earnings Surprise Trading Tips

Trading TacticExplanation
Measure ruleOn the announcement day, subtract the intraday low (point B) from the high (A) and multiply the difference by the above “percentage meeting price target.” Add the result to the intraday high (A) to get a price target (C).
ConfirmationWait for price to confirm the pattern because traders may push price down instead. An upward breakout (confirmation) happens when price closes above the high posted on the announcement day (point A in the figure to the right).
TrendTrade with the trend. Buy an upward breakout only if the market and industry are trending higher.
SwingersPlace an order to sell if the stock hits its price target.
CautionFailure rates are high. Almost half (48%) rise just 10% before tumbling and that occurs in less than 2 weeks.
Good earnings event pattern measure rule
The Measure Rule
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Good Earnings Surprise Example

Good earnings event pattern example

The above figure shows an example of a good earnings announcement event pattern. Price makes a large price swing when earnings came in better than expected. Price climbed 7%. But, over the next three days, price retraced its gain and staged a downward breakout (price closed below the red line). The following day, price recovered and climbed to a new high. Then, as is so common with this event pattern, price rounded over and headed back down during the next several weeks.

-- Thomas Bulkowski

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See Also

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Never try to out stubborn a cat.