Stocks often drift upward in the 2-5 days before earnings as traders bet on a positive surprise. This 'pre-earnings drift' is one of the most well-documented anomalies in market research.
Analysts and informed traders buy in advance of expected beats.
Options market makers hedge by buying the underlying stock.
Retail FOMO kicks in as earnings approach and media coverage increases.
Result: stocks with strong recent momentum tend to drift up 1-3% in the days before earnings.
After earnings are announced, the stock reacts to:
1. The actual numbers vs analyst estimates (EPS and revenue).
2. Forward guidance -- what management says about the future.
3. Market conditions on the day (risk-on vs risk-off).
A beat with weak guidance often sells off. A miss with strong guidance may rally.
For each stock in your watchlist, this app calculates the average next-day price move following past earnings. A stock with an avg reaction of +6% has historically jumped 6% after earnings -- useful context for sizing risk around that event.
Related: Volume Analysis • Gap Up & Gap Down • EPS -- Earnings Per Share & Earnings Reports