Read the whole thread. I think you are correct. So going forward, how do we use this this information to help us in the future. I guess the takeaway is if you believe in the fundamentals do not let short term sway you. At the same time, that first day reaction can sometimes be what people actually believe. Maybe it's a case by case situation? Still would be great to have some sort of guide. This one threw me because it was mind boggling that the stock would trade off after a quarter like that. I mean it beat even the most aggressive whisper numbers.
Yes, I think the takeaway is that you have to trust your own judgment. One of the reasons why it was vulnerable, I think, was the absence of a large short position - everyone knew they were going to beat the estimates. To get a real runup on positive earnings news it helps to have a substantial short position and folks with deep pockets who are ready to punish the shorts. Unfortunately,as long as the sector is pulling back, the common attitude is, "Yes, I want to own this stock. But I don't necessarily have to own it right now." In this case, the earnings, I think, were so impressive, some large entities realized that they did have to own it and bought an entry point for themselves.
I have seen instances where a stock disappoints to the downside on earnings and is run up. These are usually smaller cap stocks where there is a large retail short position -- not too common these days. An institution with a major long position would simply buy into the bad news and drive the price up to force the shorts to cover . Then over the course of several trading days they would walk the stock down with intermittent rallies to take out the stops of the remaining shorts. Essentially, they sold their position to the retail shorts. Just as in this case, even though the retail investor has guessed correctly, he finds he is losing money and thinks, "They must know something I don't."
When GILD blew out even the most optimistic earnings estimates last week, the rally was stopped in its tracks at 76 and the stock was eventually pushed down into the 73's before closing up a mere one point. Disappointed retail investors, thinking, "If the stock only rallies a single point on news like that,there's obviously something wrong. I'd better sell." What was wrong was that major entities were shorting directly into the teeth of the rally. If they'd bought, they would have had to pay 78+ for their shares. They continued to short in the succeeding session, which created the opportunity for them to buy their shares under 75 as they covered their shorts.