Earnings Season Delivering More Pump Fakes Than LeBron James

(Bloomberg) -- The NBA playoffs isn’t the only place you can catch pump fakes these days.

The basketball fans at Bespoke Investment Group note a disconcerting trend that’s developed as companies release their quarterly results: a tendency for stocks to pop after reporting earnings, only to drop thereafter. That is, the initial reaction is akin to what’s referred to as a pump fake in basketball parlance.

"The average stock that has reported has opened higher by 0.48 percent after its earnings report (whether the report came in the morning before the open or after the prior day’s close)," they write. "After the initial pump fake higher at the open, though, things have turned ugly."

The bottom-line beat rate so far this reporting period is 77 percent through Tuesday’s close, the independent research firm observes. From this week, Alphabet Inc. stands out as the prime example of how stock gains are far from a slam dunk despite robust financial performance.

"Earnings results have indeed been very strong so far this season, but traders have used every chance they can get to sell shares after they’ve experienced their initial gap at the open," writes Bespoke. "From a macro perspective, we view this type of action as a bearish signal" and “we would certainly avoid chasing any stocks that are initially trading higher on earnings.”

The silver lining? It’s still early in the earnings reporting period, so there’s more than enough time for a buzzer beater.

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