For the most part, Wall Street is extremely efficient.
You’ve likely heard of the efficient market hypothesis … it states that all available information on any given stock is available to the entire market at any given time.
That means the market always knows what each stock is worth.
It’s supposed to be impossible to find discrepancies between a stock’s price … and what it’s actually worth. That’s because the market has already figured it out.
Most of the time, this is correct.
But for all of Wall Street’s efficiency, there’s a weak point in the market where the entire system breaks down.
A weak point that exists in a small group of stocks that the market can’t figure out.
These are stocks Wall Street can’t pin down what they’re worth. Try as they might.
And this weak point is exposed only four times each year for this select group of stocks.
Here’s how it works…
Wall Street Is Behind the Curve
I’m talking about an earnings announcement.
This happens four times a year for each company listed on a U.S. exchange.
Each time there’s the potential for this weak point occur.
Most traders like to bet on what will happen when the company releases earnings — looking for a big one-day pop or drop.
That’s nothing more than a gamble.
We don’t really know what to expect or how the market will react. This is not the weak point I’m looking for.
Instead, right after earnings are released, the stock market is scrambling to digest all the new information.
Now we are getting into the weak moment on Wall Street.
It’s this period from the moment earnings are released, to the mad rush to understand the ins-and-outs of it. This small window is our entry point that begins a run for the stock that can deliver outsized returns in a matter of weeks.
An opportunity to capitalize on what I call my Profit Trigger.
Let’s say a stock pops 6% on an earnings announcement as soon as the market opens. A lot of people think they’ve missed out. That the stock is due for a pullback and the “easy” money is already made.
Not so. This is the market’s weak point — the one time that Wall Street is simply behind the curve.
It only happens for a small group of stocks that continue to rise in the weeks after a major earnings beat.
Sometimes we see big gains in a matter of days, but the opportunities can deliver profits for up to two months after the weak point is exposed.
It goes against the popular view that a stock is oversold and due for a pullback after a quick 5% or 10% jump.
But, on this small group of stocks, I’ve seen these share prices continue to soar 10%, 20% even 30% over the weeks following an earnings event.
Leveraging the Weak Point for Big Gains
As Wall Street takes their time to digest the data dump that comes with an earnings announcement, I’m placing trades on the stock to benefit. I know how to spot the weak point in the market, my Profit Trigger.
We are not gambling on the earnings announcement, or blindly jumping into potential trades. This is based on years of analysis, back tested to 2006, and has consistently delivered big profits over the last four years.
While settling for a quick 30% gain from a stock is great, I use a simple tool to leverage my returns and reduce my risk — options.
I’ve used options when these stocks hit my Profit Trigger to turn a 5% stock return into a 50% gain. A 30% stock return, into more than 300% in just days.
Options have a reputation of being complicated, risky and not for normal investors. That couldn’t be further from the truth. And I want to prove it.
That’s why I started a new newsletter to help explain everything there is to know about options, using real trades to break down what I look for, and how I use it to achieve triple digit gains nearly every month.
It’s called my Weekly Options Corner.
And every Friday we dive into a new options topic to make sure options are no longer complicated or feared by investors. Instead, any investor will be able to master the trading of options by simply following this free newsletter.
I’ll make it as simple to understand as possible.
All you have to do is sign up to get started.
Chad Shoop, CMT
Editor, Quick Hit Profits