Post-earnings drift (PEAD)

Stocks that gap up >5% on a positive earnings surprise tend to keep drifting for 30–60 calendar days. Stocks that gap down on a miss fade further. This happens because institutional investors rebalance slowly: a mutual fund can't reposition a $500M stake in a day, so the price adjustment happens in slow motion over weeks.

Entry rules

• Wait one full session. Day 1 noise (algo flow, options unwind) is too random.
• Day 2 entry: Enter long if the stock holds above the gap level into the close.
• Gap quality: +5% to +12% gap is the sweet spot. >15% often retraces.
• Volume confirmation: Day 1 volume must be ≥ 3× the 20-day average.

Risk controls

• Stop: post-print VWAP. A close below VWAP invalidates the drift.
• Target: 30–60 days, or +1 standard deviation move from entry, whichever first.
• Trail stop up to the 20-day MA once the trade is +5% in your favor.
• Cut and don't re-enter if the next quarter's pre-announcement is weak.

Short-side PEAD

The same anomaly works on the short side after gap-down misses. Wait one session, short if the day-2 bounce fails to reclaim the gap. Use the same VWAP stop logic, inverted. Note that short squeezes on heavily-shorted names can break this — check short interest before sizing up.