Outside the Box: Here’s how to trade a stock after an earnings surprise

Earnings surprises can be expected to cause a fast move in a stock’s price, up or down. But since the resulting move is often exaggerated, a reversal can occur soon after.

Except sometimes the reversal doesn’t arrive on schedule. What signals can you then rely on to time trades based on earnings surprises?

Consider Tesla Motors TSLA, -0.17% which on August 3 reported a net loss per share of $1.06, versus expected levels of 65 cents. This was a negative surprise at 63% of expectations. Even so the stock price did not react at all.

An expected change in the price was slight, with little to indicate a further negative reaction.

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