By Michael McCarthy

The semi-annual company reporting season gets into full swing this week. Alert readers are aware that a number of active investors are generating higher returns by taking advantage of sharp share price moves in either direction. With the Australia 200 index stuck in a narrow range, the large moves that can both precede and follow earnings announcements may represent opportunities for investors.

There are two main opportunities in these moves. Shareholders may consider taking profit where a large and sudden jump occurs (as opposed to a slow, sustained grind higher). And investors may maintain a list of stocks they wish to buy at the “right” price, and leap on any sharp weakness. One of the surest predictors of share price moves is earnings revision, and a report that prompts analysts to change their estimates (in either direction) can have a powerful impact in the following days and weeks. If the upgrade or downgrade is part of a larger trend, it may speak to the long term direction for the stock.

A case in point is Bluescope Steel (BSL). The company reports on 21 August and expectations are high. The average analyst’s estimate is a profit increase of 125%. Naturally, the improvements in BSL’s operations over the last two years were well-flagged, and investors voted with their wallets. The share price has more than quintupled from a low at $2.70 in mid-2015.

Over the weekend, one hard working analyst re-cut the BSL numbers and delivered another earnings upgrade for BSL. The impact was a 6%+ leap in trading on Monday:

The jump was likely aided by the 10% slide in the weeks prior, but is an illustration of just how powerful earnings revision can be.

The major report this week is the Commonwealth Bank (Wednesday). Others to watch include Cochlear, AGL, Seven Group and REA. The earnings reports mean participation in trading these stocks is likely higher. This is an opportunity for institutional investors, as the increased liquidity allows them to take positions commensurate to their size. However, this in turn can cause unusually large moves, representing an opportunity for individual investors who are ready to pounce.