Trading Tips

Some Numbers on Stock Market Earnings Reactions

I’m reading a book on trading based on company earnings announcements at the moment. I’ll post a review when I’m done, but there was something I wanted to share right away. It speaks to the question “Why didn’t the market rise on the positive news?” that comes up all the time (and which is among the questions answered in the Trading FAQs book). The book has a table in it showing how stocks have reacted to earnings surprises over I believe a 25-year period. It breaks down like this:

Positive Earnings Surprise
Market Rallies 60.55%
Market Falls 39.45%

Negative Earnings Surprise
Market Falls 61.05%
Market Rallies 38.95%

Good news isn’t always good news and bad news isn’t always bad news.

Trading News

Competition, Regulation Hitting Forex Brokers?

Apparently, the analysts at Citi have their concerns about the earnings prospects of the major forex retail brokers. They’ve knocked their price forecast for FXCM (which went public not to long ago) down to $18 from $14. Ouch! They’ve done this on the basis of the trading metrics FXCM has just reported for January. They didn’t quite meet expectations.

It’s interesting to note how aggressive things have gotten in the retail forex broker space where advertising in concerned. FXCM and Gain are co-sponsors for CNBC’s new forex program. FxPro is a lead sponsor for two teams in the top division of English soccer. Oanda has just started advertising after having taken a word-of-mouth approach to attracting customers for years. That means the account acquisition cost for these brokers has risen at the same time as new regulations like the CTFC’s 50:1 leverage limit are putting upside limits on how much volume those accounts can trade. It’s going to be interesting to see how the industry evolves from here.

One of the more interesting side benefits of having FXCM and Gain as listed stocks is that we get to see all kinds of data we would not have seen otherwise. One of those is volume data. FXCM reported $258bln in trading for the month of January. Gain reported $470bln for Q4 of 2010, $1.6trln for the full year. I’m thinking at some point it would be worth comparing that volume to comparable retail volume in other markets.