This market is a trader's dream: Kelly Services

Traders can make still make money as this 13% winning trade in a down market demonstrates

By Jamie Dlugosch Aug 12, 2011 5:09PM

When I trade stocks that are about to release earnings, I identify my picks over the weekend before the company in question is scheduled to report results. This past weekend was particularly challenging given the horrific state of affairs in the market.

 

Like the majority of those participating in the market a certain degree of fear clouded my vision. For a brief moment I considered cancelling trading this week given the volatility in the market. Given that all of my trading recommendations for my subscribers are long positions, downward velocity for 99% of the market did not bode well for my picks.

 

In the week prior, I made a handful of recommendations. My analysis of these picks was dead on. The companies traded reported strong results with positive guidance for the future. It should have been a big week to make money. While I did make money on two of the four trades, the other two picks were negative with one being down 10%.

 

The two winners did offset the losers making the total loss only a fraction, but the crushing losses of the last two picks combined with the negative environment had me worried. Was now the time to go bottom fishing and buy stocks?

 

As I contemplated the forthcoming week, I was reminded of a key lesson for any investor. No matter the market conditions, it pays to stick to your guns. In fact, when things look the bleakest is when you can make the biggest money in your portfolio. My moment of fear passed and I got busy analyzing stocks set to report profit numbers for the current week.

 

 

Sure enough, I found four companies that fit my parameters and made the recommendations. All four of the picks were big winners and wouldn’t you know the craziest week in the market in some time yielded a 10% gain for my subscribers. It was our best week yet during the current earnings season.

 

The Situation

 

With the market signaling that a double dip recession was on its way, the job market would likely continue to suffer. If there were a drop in employment companies like Kelly Services (KELYA) in the business of finding jobs would likely suffer. The July employment number was encouraging, but behind the numbers were a large number of workers that had simply given up the search for work.

 

There is a flip side to the job market malaise that says companies like Kelly Services will do well as companies look to replace expensive talent with cheaper contract workers. With shares of Kelly Services down 25% for the year investors appeared to be ignoring the possibility of the company growing profits in a challenging economic environment.

 

That selling in the stock did not jive with the fact that the company had beaten earnings estimates over the prior four quarters. More importantly analysts had pegged profit growth from the current year to next at 42%. With shares trading for just 12 times current year estimated earnings Kelly Services was an easy stock to buy in advance of its report scheduled for Wednesday.

 

The Entry

 

As expected the market rolled over on Monday with the Dow losing more than 600 points. The downgrade of the U.S. debt had little impact on Treasury yields, but caused chaos for equity investors. The appetite for risk evaporated and the volatility index soared higher.

 

Kelly Services dipped to $12.55 per share. It was very tempting to buy right then and there, but with the possibility for more damage in the overall market, I thought it wise to wait until Tuesday. When trading earnings I advise traders to establish their positions in the hours of trading just prior to the release of earnings.

 

The goal with these trades is to get in and out. Kelly Services, along with the rest of the market did recover on Tuesday. I made the recommendation to buy at $13.02. The stock rallied at the end of the day closing at $13.53. The trade was already a winner, but in this market those gains could evaporate in a hurry.

 

The Exit and Outcome

 

Kelly Services reported results for the quarter ending June 30 on Wednesday before the market opened. The numbers were stunning. The company reported a profit of 52 cents per share versus an estimate of 29 cents per share. More importantly management gave no indication of a slowdown negatively impacting results in the U.S.

 

With stock future substantially lower on Wednesday morning, Kelly Services was a shining star. The stock opened a dollar higher touching a high of $15.03 per share in early trading. With the negative sentiment and a worry that the gains would be fleeting,

 

I recommended that subscribers close the trade at $14.80 per share.

Adding in gains late in the day Tuesday resulted in a 13.7% winning trade on a day when the rest of the market was down. Not a bad result considering.

 

The Takeaway

 

It would have been very easy to succumb to fear last week. I’m pretty sure nobody would mind taking a breather given the horrendous market conditions. Fortunately analysis and sticking to my guns found us a big winner for the week.

 

Kelly Services was one of four winning trades netting a gain of more than 10% for subscribers. While many investors, especially those poor buy and hold diehards were crying over spilled milk and lost market value those trading earnings in a difficult market made money.

 

If you are interested in trading earnings and would like more information on my service – 8-10 weeks of trading recommendations beginning at the start of each earnings season, shoot me an email at jdlugosch@gmail.com.

 

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2Comments
Aug 14, 2011 4:30PM
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Even a broken clock is right twice a day. This is why 401Ks are getting killed.
Aug 13, 2011 3:48AM
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Unemployment numbers are comprised of those that are in the job market for the past 30 days. It does not include those that have not been in the job market in the last 30 days: people who have given up looking; those that have gone off unemployment because it has run out. One solution to unemployment is "High Speed University" check it out


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