A Big Week for Earnings

RF Micro Devices is reporting its Q4 earnings tomorrow after the market closes. As I discussed previously, I bought RFMD in January at $4.50 per share, and I was along for the ride when they announced a merger with Triquint Semiconductor (TQNT) in the end of February. RFMD’s share price immediately jumped after the merger announcement, and two months later it is now trading nearly 40% higher than its closing price on the day before the announcement. On March 4, I wrote about an upgrade that RFMD received from Bank of America, which raised its price target for the stock to $10. At the time, I gave my reasons for continuing to hold the stock, despite the fact that it was already up nearly 40% from my purchase price. So far, “wait and see how it plays out” has been working for me, as RFMD is up another 9% since I wrote the article.


RFMD made some new multi-year highs last week when both Apple (AAPL) and Triquint Semiconductor released quarterly earnings that handily beat expectations. RFMD is an AAPL supplier and TQNT is now a case of “what’s good for the goose is good for the gander” when it comes to RFMD. RFMD share price spiked above $8.50 last week for the first time before pulling back to around $8.00 when the Nasdaq tanked on Friday.

So know RFMD shareholders are anxiously awaiting tomorrow’s earnings report. What’s my take? First of all, as I said before the AAPL earnings report, I do not golf with Tim Cook. I have no access to inside information about RFMD’s finances, so any prediction I make about the actual numbers would simply be a guess. However, those of you that have read my book or my past articles on tradingcommonsense.com know that I don’t care nearly as much about the behavior of the company as I do about the behavior of its traders. I don’t directly make or lose any money from RF Micro Device’s earnings. The way I directly make or lose money is when RFMD’s share price rises and falls, and that depends on how many traders are buying and how many are selling.

First off, I will say that my long-term plan for RFMD is still “wait and see” (translation: “hold”). However, while discipline is extremely important when it comes to successful trading, flexibility is also key. Changes in circumstances dictate changes in strategy, so my approach to RFMD could easily turn on a dime. Having said that, I must admit that I am worried about the RFMD earnings release tomorrow. I fully expect that RFMD will release good numbers, and I expect that the company performed very well in the previous quarter. If you have been reading my recent articles, maybe you caught the troubling parts of that last sentence. If so, good job! You have already learned one of the most important lessons of successful stock trading.

For those of you that are baffled, read the sentence again: I fully expect that RFMD will release good numbers, and I expect that the company performed very well in the previous quarter. So I guess you could say I have pretty high expectations for that earnings report tomorrow, huh? And the troubling part is that I’m sure I’m not alone. The awesome earnings from AAPL and TQNT last week just stoked the expectations for RFMD, and I’m worried that the market’s expectations for tomorrow’s report are simply so high that even really good numbers will be a disappointment and lead to a sell-off. Of course, even high expectations can be beaten from time to time, which is the hope that we RFMD shareholders will be clinging to when that closing bell is tolling tomorrow. However, high expectations much more often lead to disappointment.

Again, I am not a day trader, a psychic, or a RFMD insider, so I have no idea how the earnings report tomorrow will turn out. For the time being, I plan on holding my shares through the storm good or bad. However, when I logged onto my Stocktwits account this morning, and the first thing I saw was this…


… I must admit it made me start to worry about tomorrow.

Do you find it frustrating that a good earnings report could still lead to a drop in share price? Does the stock market seem completely random or rigged against you? Trust me, it’s not.  I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market in five years using only basic principles of psychology and common sense. To read about how I did it, check out my book, Beating Wall Street with Common Senseand stay tuned to tradingcommonsense.com!