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Pre-earnings drift

Front-run good news without holding the binary event.

Thesis

Stocks with positive momentum and rising analyst revisions tend to drift higher into earnings as funds front-run good news. Academic studies (Bernard & Thomas, 1989; updated through 2020s) document a measurable abnormal return in the 5–15 sessions before high-quality reports.

Setup rules

  • Universe: Liquid US stocks, $5B+ market cap, average daily volume >1M shares.
  • Entry filter: Analyst EPS estimates revised UP within the last 30 days.
  • Trend filter: Price > 50-day moving average, 50-day MA > 200-day MA.
  • Timing: Enter 10–15 sessions before the print, scale in over 3 days.
  • Exit: Close 100% of the position the day BEFORE earnings (never hold the print).

Risk controls

  • Hard stop: −2× ATR from entry, or close below 50-day MA — whichever hits first.
  • Position size: 0.5–1% of account equity per name.
  • Don't stack: no more than 3 concurrent pre-earnings drift trades.
  • Skip if VIX > 25 or implied move > 10% (signal noise dominates).

When it fails

Drift breaks down in macro-shock regimes (rate hike surprises, geopolitical events) and in sectors where the next print is feared (e.g. retail after a weak peer report). If the broader tape is selling off into earnings season, sit out.