Stock Traders Chase Icarus - Mike Swanson (10/18/10)

Last week we had the first week of third quarter earnings. Most of the stocks that reported earnings that beat estimates - such as Intel - gapped up on their earnings news and fell. There were some bad spots too especially in banking and finance stocks as mortgage write-offs continue. GE for instance rallied into its earnings release and then got smashed on Friday when it announced an eighteen percent drop in profits. GE ending up gapping down and closed the day down 5%.

However, Google shares went up on its Friday earnings news thanks to a massive morning gap up.

That gap up helped push the Nasdaq 100 higher too as people got excited about the gap up and loved the idea of buying a stock high up in the sky.

Such moves help spur people to try to chase the next stock that might go up on earnings and there are plenty of people trying to offer guesses on such things. I don't play that game because frankly I can't predict the future like that and for every Google that gaps up there are a dozen GE's in this market and economy that report earnings and drop.

I like to buy stocks that are oversold on charts or are breaking out of bases like FLL or FN and not just buy in hopes they will come out with good news and they will then go up. If they go up into the news they might drop anyway, because traders tend to buy before the news and sell when it comes out - so news chasing and stock chasing isn't such a smart thing to do.

But that is what everyone does anyway.

I find that I don't buy as many stocks or do as many trades as normal during the start of an earnings announcement period, because usually the market has already gone up into those times and it is best to just wait for the market to react to the first batch of earnings and then settle back down - which usually means it starts to sell the earnings news and pullback.

And we seem to be in this same situation right now. So for the next few days at least I don't plan on doing any stock buying.

Here are some stocks on my radar screen:

CHGS is a low PEG industrial company that makes mineral-based heat resistant products. I'm watching to see if it can build a base for a few weeks below the $1.50 resistance level. That would put it in a position to breakout and make a run to the 1.75-2.00 range.

I am also watching to see if TER can consolidate below $11.50 for the next week or two.