Why I Wouldn’t Buy DELL Right Before Earnings
Someone asked me why I wouldn’t buy DELL before earnings, especially when I’ve held other stocks through earnings.
The difference is context.
With LITE, I was already in the stock and had roughly a 25% cushion going into earnings. In situations like that, I may sell some before the report and hold the rest through earnings.
That is completely different from initiating a brand-new position right before earnings.
If you want to hold stocks long enough to capture really big moves, eventually you have to get comfortable sitting through some earnings reports. There is no way around that. Even with a large profit cushion, you can still get hit with an ugly reaction, like we saw with BLLN.
But I will NOT buy a stock immediately before earnings just to gamble on the report.
And with DELL specifically, the decision was even easier.
The stock looked like it wanted to go higher, but showed very little follow-through. Then it had a bad day today, falling more than 6% and closing below the 50-day moving average.
On top of that, the overall market hasn’t been acting well.
So now you have:
Poor follow-through after a failed breakout attempt
A greater than 6% down day
A close below the 50-day moving average
A less-than-ideal overall market
Earnings immediately ahead
Why would I initiate a brand-new position and take on earnings risk with all of that working against me?
For me, there is a big difference between holding earnings with a 20% to 30% profit cushion in an existing position and buying a stock immediately before earnings with no cushion at all.
Those are two completely different risk situations.
Now, with DELL up roughly 10% after hours, I’ll watch how the price continues to act and see whether it gives me a setup. It did something similar in early March after the big gap up in late February.
I don’t need to predict the earnings reaction or gamble on the report. I can wait for the report, see how the market reacts, and then look for a proper setup.
