Earnings Headspin

2018-04-27 | Allison Ostrander

Simpler Summary

Earnings can always be a fun time to place some trades. The rush of a gap in a stock in your favor can make it feel like you hit the jackpot, and that is the best way to look at trades held through earnings. Earnings Trades can often be seen a lottery trades. Even if there is a strong set up in the chart, the news about earnings, or even the reaction to the report, can cause the chart to make a complete 180. If you like to trade these gambles, then please keep in mind the most important rule:

 

“ONLY TRADE WHAT YOU ARE COMPLETELY WILLING TO LOSE.”

 

Sometimes traders might believe they have the special foresight to predict directions on earnings. However, as much as we would like a crystal ball to take a peek into the future, there is no certainty to how the move will play out. A great example of this is GOOGL earnings this week. They posted not only better than expected earnings per share, but overall revenue also beat expectations. At first in after hours, GOOGL gapped up 3% in delight, as one might expect from a strong earnings report. However, not more than 20 mins later into After Hours, GOOGL had given up all of the 3%  gap higher and was actually showing red in the futures. Some traders might be scratching their heads, saying, “This just cannot be true,” but this is exactly why you should look at earnings trades as lotto trades. The market is going to react how it wants to, even if it seems irrational. It is better to have a small win on a small amount of capital invested than a huge loss from overloading the boat with capital risk. Trade smart, trade simple, and your account will thank you.

Simpler Sentiment

David For over a month I’ve been expressing the opinion that the S&P 500 was likely wedging into a triangle before continuing up to make new all-time highs.  At this point, all the elements are now in place to view a complete triangle at Wednesday’s low. While it remains possible that lower levels are seen, at this point we shouldn’t print below lows from the beginning of the month.  But with a strong move up in the back half of the week, I am encouraged that the uptrend has now resumed.

Carolyn — My last time/price setup in the SPX/ES futures was for a buy entry against time/price support.  We held symmetry beautifully into timing for a low with cycles due 4/24-26 (on the chart below).  We’ve already seen a nice rally here and need to trail up stops on longs. To continue to rally we need to clear the .618 retracement back to the last key high.  If we can push through here, we are more likely to continue to rally with the 1.272 extension as my initial upside target. I’m wrong if we break that last low!

SPX Fib Levels

 

Henry — This week brings a couple themes to mind. The first of which is that nothing is a sure thing, and to some degree why I’ve never enjoyed “streaks”. With MSFT having performed so well in the past for the run into earnings, and with the confluence of a daily Squeeze, I was looking for a new lifetime higher prior to the report. As it works out we had to go through a deeper pullback – a pullback I’m thankful I was able to hold through, but none the less, the results weren’t what I was expecting. Each moment in time is unique and while history can be extremely helpful in making decisions, it’s no guarantee of what’s going to happen next. The others I’ve been reminded of are patience and risk control (being able to hold through the pullback) and being ok with what you have on. Outside of that it’s always nice to have a few honey badgers onboard and FSLR was one of my favorites I had mentioned a few weeks ago (along with WYNN though I am flat there). Shares are up nearly 5% after earnings, trading at $78.73, a perfect complement to the 80 calls I sold prior to the report.

Raghee —  I am generally bullish the equities markets with the daily charts still above the 200 EMA. I am very bullish energies. Overall I don’t see the strong crude oil and US dollar a longer term problem for stocks. I am looking for a buy in ITA and JETS.

The RAF Buy scan is a staple in my daily stock scan right now. I am also still betting on Canadian dollar strength and Australian dollar weakness.

Taylor — Solid week in the crypto market with green across the board. Looking for Ethereum (ETH) to hold above the $642 level or stay rangebound between $618 and $642. Altcoin setups are dependent on continued sideways action in ETH. The market was quiet with news this week with few catalyst effecting price.

Trade of the Week Update

 Bruce Marshall says:

See the original setup HERE

Expert: Bruce Marshall

Setup: Setup on TIF

Update from Allison’s Setup on TIF:

The Long Debit Call Vertical spread has worked out nicely as we run higher into earnings. We opened this trade with the strikes slightly out of the money on a play to see a movement higher from TIF going into earnings. Currently TIF is trading at 103.32 and our Long Debit Call Vertical is now completely in the money with a nice profit. If you wanted to lock in the profit here you can always look to take it off the table, or if you want to continue to hold to receive more of a profit potential you certainly can with the time built into the trade. As long as TIF stays above 102, we can expect to see close to a full profit potential going into earnings. I do recommend closing this out before earnings so you do not give up any of your current profit. Ultimately though, you must do what you think is best for your account.