Let's start this article on solid ground by stating the obvious: We are heading into the thick of first-quarter earnings season. And with that comes trading opportunity. In an April 6 article I discussed some strategic approaches to dealing with
inevitable blowups . ( Harley-Davidson's ( HDI) wipeout this week was another example.) Now, though, I want to take a more proactive approach and look to establish positions in anticipation of earnings reports that could produce both upside and downside surprises. While I do a lot of my own research in searching out trading ideas, when earnings season comes along, I like to lean on the computational power that a large firm with an army of analysts and quant jocks can bring to the table. This helps me sift through the numbers of the thousands of companies that report in a four-week time span. In the past I've turned to work done by Keith Miller of Smith Barney. Miller and his team produce a reliable list of stocks most likely to deliver earnings surprises. It is a quantitative model that uses several basic criteria to come up with candidates that that will deliver a "standardized unexpected earnings," or SUE, as the model is known. It provides a great starting point to scan for trading ideas. June 2004 article .