Microsoft, Tesla Earnings Reports Reveal Trades


Simpler Trading Team

Jan 27th 2023  .  5 min read

Inflation data again took center stage in the stock market on Friday and claims of an impending recession are getting called into question.

Whether inflation settles down or a recession is somewhere over the near horizon, Simpler’s traders are finding ways to make trades.

One area of focus for the team throughout the year is earnings season, and this cycle has held promise for retail traders.

Options with Sam Shames
Futures with Jack Roberts
Fibonacci & Voodoo with David Starr

Don’t get off track in wild ride of earnings season

What does earnings season mean to retail traders?

Earnings season in the stock market is considered the four times of year when publicly traded companies share financial reports for the previous quarter. Earnings season spans several weeks starting about four to six weeks after a financial quarter ends.

Traders look for a variety of signals in earnings reports that may indicate how a company’s stock will perform going forward. An earnings report can contain financial information such as sales, profit, losses, cash on hand, and earnings per share (EPS). The report may also reveal how the company handles its finances – think cash flow statement – and company executives may offer guidance on the future of the company financially.

Fourth-quarter earnings season – which covers the last quarter of 2022 – is in full swing with some big-name companies making an impact on the stock market. Earnings reports have been a mixed bag of results for companies across a variety of sectors.

For example, Microsoft Corp. (MSFT) reported earlier this week that earnings fell to a six-year low last quarter. Microsoft reported earnings after hours on Tuesday and the stock opened down considerably the next day. Since then the stock has rebounded, covering the after-earnings losses.

The key to trading earnings is not getting caught in the wild, up-and-down price movement that can occur right before, during, and after the earnings report.

Typically Simpler Trading team members will start watching and trading during the run into earnings. This period can be from 10 days to four weeks before an earnings report. The goal is to trade the expected run up in price leading into the earnings report and then exit the trade before the report is announced.

Holding trades through an earnings report can be risky.

Trades after the report typically follow a pattern of waiting to see how the financial numbers affect the stock price and trading according to that movement higher, lower or sideways.

Historical performance of a stock price during earnings season is a key consideration for these types of trades.

‘Tesla bull’ shares stock picks for earnings

Danielle Shay, Vice President of Options at Simpler Trading, keyed on two high-profile stocks this week for earnings season trades.

Tesla, Inc. (TSLA) reported earnings on Wednesday, and Danielle considers herself a Tesla bull.

“Overall, when I look at the stats, Tesla rallies post earnings,” Danielle told Charles Payne on his “Making Money” show on the Fox Business channel prior to the earnings report. “In the eight-day period post earnings it will average about 6 percent over the last 12 quarters.”

She called Tesla as a buying opportunity and the stock climbed from $142 on Monday to closing at $177.90 on Friday.

Danielle also highlighted trade opportunities in Microsoft this week which reported earnings on Tuesday, emphasizing slow growth is expected.

“Microsoft normally bounces post-earnings even when they announce slowing growth and usually trades higher by an average 3.5 percent in the eight-day timeframe,” Danielle said.

Microsoft stock fell to $231 the day after the earnings report and has since rallied, closing at $248.16 on Friday.

Earnings season trades are generally planned leading into the reports, but as this week has shown there can be opportunities for trading after earnings reports are released. Danielle stresses the importance of maintaining a stock watchlist that targets specific companies and then taking action when stock chart indicators reveal potential trade setups.

Core inflation still not in line with Fed goal

The latest mixed bag of economic data hit the stock market Friday to close out another volatile week.

The U.S. personal consumption expenditures (PCE) price index, which measures prices paid by consumers for goods and services, showed that inflation has eased, but with an air of caution.

PCE data showed that consumer prices rose by .1% in December from the previous month while rising by 5% year-over-year, according to the Bureau of Labor Statistics.

The core PCE price index – which excludes food and energy and is watched closely by the Fed – rose 0.3% for December. This is an increase of 4.4% over the same time the previous year. (The Federal Reserve continues to attack inflation with policies to bring the core number back to 2%.)

The mixed data didn’t stop a two-day rally higher across the board in equities.

The Nasdaq closed at 11,621.71 for a .95% increase and the fourth week of gains for the index. The S&P 500 pushed higher to 4,070.56 for a .25% increase while the Dow closed at 33,978.08 points to barely rise by .08% (adding 28.67 points on the day).

What risks are ahead for retail traders?

As the stock market sets up for the Federal Open Market Committee meeting next week and another round of interest rate hikes, Danielle touched on risks that lie ahead for retail traders.

“The greatest risk is going to be something completely out of left field,” Danielle shared during her “Making Money” segment. “Right now everybody is looking for a recession, so that cannot be the greatest risk. Everybody is looking for it, it’s not going to be a surprise, and I think everybody knows what the Fed is going to do.”

“We’ve seen inflation come down,” Danielle said. “The only thing that could be a massive risk would be, for example, if inflation jumped massively out of nowhere.”

To keep up with all the economic data and Fed actions, spend some time with the Simpler Trading team.