The rules we tested
- Power earnings gap: on the first session after the report, the stock opens 8% or more above the prior close, closes at or above the open, on at least 3 times its 50 day average volume.
- Beat and pop: the company beat estimates on both earnings and revenue, was in an uptrend, and closed up 3% or more on the report.
- Entry: buy at that close. Exit: sell 20 trading days later.
- Stocks: US stocks above $10 trading at least $20 million a day on average, including companies that later stopped trading.
- Judged against: the average eligible stock over the same days, after a 0.1% round trip cost, and against random stocks bought on the same day.
*2025 runs to May.
Small yearly samples (49 to 187 trades) make single years swing widely.
All three versions
- Power gaps outside the S&P 500: 815 trades, 0.26% behind over 20 days and 0.08% behind over 60 days.
- Power gaps in the S&P 500: 176 trades, 0.21% behind over 20 days.
- Beat and pop in the S&P 500: 1,378 trades, 0.50% ahead over 20 days, too little to tell apart from random picks. In the 18 months after that it was 0.52% behind.
We also ranked every report by the size of its earnings surprise and held the biggest surprises for 60 days. In the most recent 18 months they lagged the average stock by 1.71%.
The most recent 18 months
In the most recent 18 months, which we held back and checked separately, the same rules gave 306 trades and +1.85% against the average stock, with 52.6% of trades making money. That is not enough to tell apart from luck.
What it means for your trading
- A big gap up on earnings has already priced in most of the news by the close.
- Chasing the gap was no better than buying the average stock the same day.
- A company’s past reactions to earnings are more useful for sizing a trade than a drift you cannot count on.
Limits: daily closes from mid 2018, which includes one bear market (2022). Results are averages over thousands of trades; any single trade can do far better or worse.