Earnings Drift When and how to use it

Cedd Moses Interview in “The Best Conversations with Top Traders” by Marder and Dupee Competed against David Ryan (O’Neil protégé) and won the US Investing Championships using CAN SLIM return of 379% in 1991 …companies have to be exhibiting a positive earnings drift in order to make my screens. That’s the other fundamental factor which is something I have developed internally…… Kevin Marder: Again this could be Proprietary, but do you look at drift over the last 30 days or 45 days? It’s the 45 days going into the earnings number . I’ve found high correlation between positive earnings drift and positive earnings surprises.

Earnings drift Analysts estimates going into earnings. If a company is slated to report 17 cents for the next quarter and at 7 and 30 days going into earnings the estimate is being revised to 18 and 19 cents, respectively, we call that a positive earnings drift. There is no holy grail with this indicator but it has been 80 to 90% accurate at the start of rallies and about 60 to 70% correct as the rally gets on. You want to mirror this action this the chart both weekly and daily. I personally like to take 30% off the table before earnings even though I know it will be great based on earnings drift. It prevents you from taking a psychological hit. Worked very well with all my holdings from mid August. Priceline.com, Chipoltle, and Netflix all had positive earnings drift and didn’t disappoint.

Other indicators in addition to Earnings drift Look at the charts and earnings calls of other stocks in the group or sector and get a sense of whether companies are under distribution or accumulation and whether they have reported positive or negative surprises. This may be an early indication of change in industry conditions. Also don’t forget to look at supplier companies. If Apple Inc. reported excellent earnings then there is a supplier company that is benefitting. This is the cousins theory that is mentioned in How to Make Money in Stocks.

Companies that had great earnings drifts and beat estimates and companies that had poor earnings drifts that disappointed AAPL (Jan 18), CMG (Oct 21st), NFLX (Oct 20th), PCLN (Nov 8th) FFIV (Jan 19th flat – result -24.4%), GMCR (Sept 29 flat - result -16%)