Investing Around the 1st & 15th
- 7 days ago
- 9 min read
“I'd put my money on the sun and solar energy. What a source of power! I hope we don't have to wait until oil and coal run out before we tackle that." - Thomas A. Edison
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I wanted to comment on a frequent complaint from an investing group I participate in because, at its core, it's an internal argument we all have when investing: "Why is this happening?" "What happened today that made stock XYZ do whatever it did?" It's a good group, very diverse in terms of experience, and I often read excellent analysis in the comments.
In this group, a stock selection comes out around the 1st and 15th of the month. The group's decision makers have decided to release new picks on this defined schedule, and I have no argument with that. However, a selected stock often runs up early, leaving many feeling they missed the boat. There are several reasons, including timing, pre-market activity, major index and ETF inclusion, coincidence, the types of investors and traders in this group, and the calendar.
I wanted to speak specifically about the risks and opportunities of investing around the 1st and 15th of certain months. Aside from the herd hearing the dinner bell, here are some of my notes on risks related to the 1st and 15th, specifically the 5 days before and after those dates. What I have to say here can help an investor treat the initial earnings reaction as a "liquidity event" rather than a directional signal. When you display this discipline, you let market participants exhaust themselves before you decide to risk capital.
Warren Buffett has spoken extensively about the noise surrounding earnings, and his philosophy sits at the absolute opposite end of the spectrum from short-term, earnings-based trading. He views buying or selling stocks based on quarterly earnings reports as speculation, not investing.
Here is how he frames the issue:
The "Voting Machine" vs. The "Weighing Machine"
When discussing short-term market volatility—such as the massive price swings triggered by earnings beats or misses—Buffett frequently invokes a concept from his mentor, Benjamin Graham: "In the short term, the market is a voting machine. In the long term, it is a weighing machine."
To Buffett, an earnings reaction is just a "vote" based on the daily emotions, panic, or euphoria of traders. Over a 10- or 20-year timeline, however, the market "weighs" the business's actual, compounding cash flow. He completely ignores the voting machine.
Quarterly Estimates Are Irrelevant
Buffett has heavily criticized the corporate obsession with hitting Wall Street's quarterly earnings estimates. He believes that focusing on the next three months encourages management to make poor long-term decisions and encourages investors to focus on the wrong metrics. He has explicitly stated that he does not attempt to forecast short-term stock price movements or base his buys on earnings predictions, noting that if you are buying a business to hold for a decade, a single quarter's performance is statistically meaningless.
Earnings Misses as Buying Opportunities
While Buffett does not trade the earnings volatility, he does use the market's overreactions to his advantage. If a fundamentally fantastic company with a durable competitive moat reports a "bad" quarter—perhaps due to short-term supply chain issues or a temporary macroeconomic headwind—and the stock gets punished by short-term traders, Buffett views that as a prime entry point.
As he puts it, "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down." A bad earnings reaction that does not fundamentally break the company's long-term business model is exactly the kind of markdown he looks for.
The 10-Year Rule
Buffett's ultimate filter for buying a stock renders earnings season obsolete: "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes."
If your thesis for entering a position relies on guessing what the company will say on their earnings call or hoping for an algorithmic momentum spike, you are operating entirely outside of Buffett's framework. He analyzes the long-term durability of the company's competitive advantage; if that remains intact, the quarterly earnings call is just background noise.
Let's look at the specific risks to trading stocks around the 1st and 15th of the month.
Within 5 Days of the 15th (The 10th to the 20th):
This window aligns with the start of earnings season.
The majority of publicly traded companies use standard calendar quarters ending on March 31, June 30, September 30, and December 31.
Companies typically need 2 to 3 weeks to close their books before reporting.
Earnings seasons historically kick off around the 12th to the 15th of January, April, July, and October.
This window is dominated by major financial institutions and other large bellwether companies that set the tone for the rest of the market.
Within 5 Days of the 1st (The 26th to the 5th):
This window captures the peak volume of earnings season.
By the time the calendar shifts from the earnings kickoff month to the following month (e.g., late April to early May, or late October to early November), the market is in the thick of the reporting cycle.
This window shows a massive concentration of technology giants, consumer discretionary companies, and the bulk of the S&P 500.
The "Off" Months:
While these date windows mark the peak of market activity four times a year, the percentage drops to near zero during the "off" months (March, June, September, December). During these months, the only companies reporting are those with non-standard fiscal years (such as many traditional retailers whose fiscal years end in late January to account for holiday returns).
Ultimately, if you are looking at the 10th–20th and the 26th–5th during January/February, April/May, July/August, and October/November, investing during these periods carries unique structural and mechanical risks. During these periods, the standard rules of price discovery and technical analysis can be temporarily suspended by massive influxes of algorithmic and institutional rebalancing activity.
Primary risks to navigate during these peak periods
Momentum Distortion and False "Ants":
Earnings events can disrupt momentum. An unexpected beat or miss can trigger an immediate surge in volume, which can easily set off momentum indicators, including "Ants" or other volume-spike signals. During earnings season, these spikes are often driven by algorithmic overreactions, options hedging, or short-covering rather than true, sustained institutional accumulation. A momentum signal during these weeks is highly likely to be a trap.
Dark Pool and xADF Noise:
If you rely on tracking off-exchange institutional flow, earnings season creates a massive signal-to-noise problem. The sheer volume of retail, algorithmic, and reactive institutional trading flooding the public exchanges makes it incredibly difficult to isolate meaningful Dark Pool (ADF) prints. The quiet, deliberate institutional positioning, which is easily visible during "off" months, gets completely drowned out like a wet Kleenex by reactive block trades, making market forensics much harder to interpret.
Gap Risks and Volume Profile Voids:
This will only matter to technical traders or to those using technical indicators to set limit orders. Earnings announcements can create overnight gaps. A stock can easily gap up or down, bypassing established, heavily traded volume nodes.
- Execution Risk: If you are executing a precise position-building strategy with tight limit orders, a gap can blow right past your fill zones.
- Structural Risk: These gaps create voids in the volume profile. A stock that gaps up into a void has very little structural support, making it vulnerable to low-volume pullbacks once the initial earnings excitement fades.
Misinterpreting Insider Action:
After a company reports earnings, its corporate trading blackout period typically lifts. You will often see a sudden wave of Form 4 filings showing executive selling. A common risk is interpreting this as a negative shift in internal sentiment, when in reality, those insider sales are likely just planned 10b5-1-automated sales executed the moment the legal window opens. Those 10b5-1 sales execute regardless of price. Executives and board members are paying themselves and diversifying away from their overweight positions in their own companies.
Implied Volatility (IV) Crush:
This part matters most to options traders, but stock investors can learn a great deal by examining the options market. In the days leading up to the 10th–20th and 26th–5th windows, option premiums rise as the market prices in uncertainty about the upcoming reports. Once the numbers are released, that uncertainty vanishes and implied volatility declines. Buying options or entering certain equity positions right before the report exposes you to this "IV crush," where you can be right about the stock's direction but still lose money because the premium deflates, sometimes quickly.
How To Avoid Earnings Season “Traps”:
Zooming out to longer-term charts is an effective structural filter, but it works best when paired with a few tactical rules to verify whether a volume spike is a trap or a true institutional campaign.
The Multi-Timeframe Filter (Zooming Out):
When a daily chart shows a massive, screaming volume spike, it can look like an undeniable breakout. However, switching to the weekly or monthly chart instantly strips away the algorithmic noise.
- The Test: Look at where that spike sits relative to long-term structural levels. Is the daily "breakout" slamming right into a multi-year weekly resistance level or a declining weekly moving average?
- The Result: True institutional accumulation leaves a footprint on the weekly chart that looks like a steady, controlled trend. If the weekly chart shows a chaotic, volatile mess of long upper wicks (Candle chart), the daily spike is highly likely to be a transient trading event rather than a structural shift.
The 3-to-5-Day "Wait and See" Rule:
Institutions manage massive positions that cannot be filled in a single trading session. They require days, weeks, or even quarters to accumulate a core position. Therefore, you do not need to chase the day-of or day-after earnings move.
- The Trap Footprint: If the spike is driven by short-covering or options hedging, volume will dry up instantly on days 2 and 3, and the price will begin to drift back into the previous range, filling the gap.
- The Institutional Footprint: If a major fund is genuinely accumulating, the stock will hold its post-earnings gains. Look for the price to consolidate sideways or slightly higher on significantly lower volume over the next 3 to 5 sessions. This suggests that supply has been absorbed and that sellers are not driving the price lower.
Volume Profile and the "Void" Test:
Raw volume bars at the bottom of a chart only tell you when trading occurred, not where value shifted. Using a Volume Profile (Volume by Price) tool helps you see whether the earnings gap skipped over crucial trading zones.
- High-Volume Nodes: If a stock gaps completely over a massive high-volume node, it leaves a structural void beneath it.
- The Strategy: Avoid buying the momentum spike into a void. Wait to see if the stock retraces to test the top of that high-volume node. If it tests the node and bounces on light volume, the previous resistance has turned into validated institutional support.
Accumulation/Distribution Divergence:
To determine if a volume spike has staying power, look at cumulative accumulation/distribution metrics rather than isolated momentum bars.
- The Indicator Check: If price surges on earnings, but underlying accumulation/distribution lines flatline, tick downward, or fail to make a corresponding new high, it reveals a hidden divergence. The volume was mechanical churn (market makers balancing books), not aggressive buying.
Stay Invested,
Clay Baker
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Clay's Rules
Rule #1: Don't lose money
Rule #3: Portfolios go to zero, markets don't; Stay Invested
Rule #4: When good stocks you own drop 10% below your cost basis, add shares
Rule #5: Bull markets aren't sustained without the Transports
Rule #6: When Forward P/E is lower than TTM P/E, expect earnings to increase
Rule #7: When an investment bank trades below book value, buy it
Rule #8: Tips are for waiters. Do your own homework.
Rule #9: Don't sell a stock because you're bored with it. Do your homework.
RULE #10: Don't expect a company's stock to perform according to your timeline; be patient.
Rule #11: Investing is easy. Waiting is hard; waiting is the hardest part.
Rule #12: It's hard to be incredibly intelligent. Not being stupid is pretty easy.
Rule #13: Good allocation is more important than good stock picking.
Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or be interpreted as providing a personal recommendation. This and all articles on this website are provided for entertainment and educational purposes only. Investing involves risk and the risk of loss of part or all of your capital. Invest wisely, make your own decisions, and seek advice from multiple sources.
