Bolt Before the Report

In other words, it's a mistake to trade when we have no definable edge to exploit. This is exactly the dilemma we face ahead of an earnings report. And you're barking up the wrong tree if you believe that pretty charts give you that edge ahead of the news because, in truth, technical analysis fails miserably as a predictor of post-report price direction.

Symantec(SMYC Quote) bounced strongly after hitting its November low, jumping above the 50- and 200-day moving averages in April and hitting a seven-month high, just two days ahead of its May 6 earnings release. The stock was firing on all cylinders before the news, with strong accumulation pointing by healthy buying interest and a positive technical outlook.

Symantec (SYMC) Source: eSignal

The company beat earnings estimates and issued in-line guidance, but that didn't stop it from falling 17% and plunging through the broad layer of moving average support. Adding insult to injury, it's now July and price still hasn't recovered, so enthusiastic buyers into the report haven't had a single opportunity to "get out even."

In reality, it doesn't matter if a company exceeds, meets or fails to meet analyst expectations despite the chatter about whisper numbers and profit growth, because there's a huge disconnect between the news and subsequent reaction. I challenge you to argue that point because we've all watched in jaw-dropping awe as stocks beating their numbers sell off violently, while those confessing gut-wrenching shortfalls deliver amazing rallies.

Of course you'll miss profits standing on the sidelines when upside surprises trigger big gaps or runaway markets like today's Intel(INTC Quote) rally. Sadly, those events will fog your brain about all the times you became the ultimate bagholder after an earnings report and were forced to hold onto a loser for months hoping it would turn the corner.