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Earnings Trade Setups, part 2 (video)

This is a follow-up to Wednesday's Earnings Trade Setups & Trading Tips video. In that recent video, I had scrubbed through a long list of stocks that were scheduled to report earnings on Wednesday March 8th, narrowing it down to a list of 20 stocks that appeared to have clearly bullish or bearish chart patterns.

The purpose of that video was two-fold: First, to provide a list of actionable trade ideas with the additional benefit that all of those stocks will have just reported earnings, thereby allowing a swing trader to establish a position without having to make the tough decision as whether or not to hold that position into an earnings report for another 3 months. Secondly, I wanted to use actual examples, in advance in order to eliminate any hindsight analysis, to illustrate how more often than not, the direction in which is stock is likely to move following its quarterly earnings report is not merely random, rather fairly predictable but only when the charts are clearly bullish or bearish preceding a company's earnings announcement & forward guidance.

This video does a follow-up on all 20 stocks that were predicted to either have a positive or negative reaction to their earnings announcement & any forward guidance released on Wednesday with 10 (50%) of the stocks clearly moving in the direction as expected, many of those posting double-digit gains (or losses on those expected to fall) since then, only 2 stocks (4%) moving against the expected post-earnings direction (and both by a relatively small margin) with the remaining 8 stocks either roughly flat (no significant reaction or price movement following earnings).

5 Comments

  1. Profile gravatar of jameske
    jameske March 10, 2017 12:24 pm at 12:24 pm

    @rsotc Hi Randy, interesting video. My question relates to taking longs during your current short bias to more downside in the broad markets. Why would anyone go long on some of these potential bullish falling wedges when a broad market sell off could halt or reverse any brief move? Is it not like starting a swim just before the tide is going to turn against you? (I can understand taking the bearish rising wedges, as if the broad market turns the tide is with you).

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  2. Profile gravatar of rsotc
    rsotc March 10, 2017 1:21 pm at 1:21 pm

    Great question. First & foremost, I often try to impress the fact that I prefer to trade stocks, not the market as not only are the gains & trends on individual stock trades much larger than those when trading the broad market, as you are going long or short both the most bullish & most bearish stocks anytime you trade the broad stock indices. Secondly, at almost any point in time, I have a mix of both long & short positions in across my trading account as well as my long-term accounts (IRA’s, etc..). However, depending on either the current trend and or my expectation for a trend reversal, I will either be net long or net short regarding my overall exposure to the market.

    Some other points to consider is that even if I am, say “net short” in regard to my stock market exposure, at almost any given point in time my portfolio is made up of a combination of various assets class, including commodities & precious metals/miners as well as other securities which have very little, if any correlation to the stock market & in many cases, an inverse correlation to the stock market. Therefore, I could technically be 100% long across all my positions but if the bulk of those longs consisted of precious metals, select commodities, investment grade bonds, select currencies, and other securities that have an inverse correlation to the stock market (they tend to rise when stocks fall & vice versa) then I could still profit in during a pullback in the stock market.

    Finally, I’ve made a point lately that most of the longs that I’ve been personally trading recently as well as highlighting as trade ideas (either officially or unofficially) are stocks that have a low correlation to the broad market. AAPL & GOOG, for example, are highly correlated to both the $NDX & $SPX where as some of the recent long trade ideas within the trading room such as CARA, CANN, USRM, FCEL as well as quite a few of the stocks in this video have little to no correlation to the broad market.

    Bottom line is that I am a huge proponent of diversification and to expand on that, some might think simply holding a dozen or more stocks or ETFs means that their portfolio is diversified but if those positions including securities such as QQQ, SPY, AAPL, MSFT, GOOG, FB, etc.., all of which are highly correlated, then they are far from diversified, as least in my book & essentially have a portfolio that will rise & fall with the broad market.

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    • Profile gravatar of rsotc
      rsotc March 10, 2017 1:35 pm at 1:35 pm

      One other point that I should add: Despite while at times, like now for example, I might have a strong conviction that a trend reversal (in this case a correction) in the broad market is likely, I know enough about myself to know that my analysis will be wrong at times & as such, especially until we get most of all of the sell signals that I’m watching for AND it has become pretty clear the the trend in the market has changed to bearish, I will continue to trade the best looking long setups & even if I’m being extra selective & passing on a lot of the long setups that I’m sharing on the site.

      I also strive to post any trade setups, both long & short, that standout since while I might be bullish or bearish at the time, I realize that there will always be members of the site that have a different outlook for the market than mine. Therefore, in addition to analysis on the stock market, commodities and other asset classes, one of the services that I am trying to provide is to pass on the best looking trade setups, long or short, regardless of my own views on the market so that traders & investors looking for trade ideas that mesh with their own views, trading style & any voids that they might be looking to fill in their portfolio at the time will have several ideas to choose from (or pass on). Hopefully that will help explain why at times, I might be calling for a rally or correction, yet pumping out trade ideas that might seem to conflict with my expectation for where the stock market or a particular sector is headed.

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  3. Profile gravatar of jameske
    jameske March 10, 2017 3:01 pm at 3:01 pm

    @rsotc So, when you post or make a video of bullish falling wedges I should be including the fact that you are factoring in your current market bias, and that you regard such set ups with a good likelihood of success? Because lately I have been suffering from trade paralysis. i do not wish to go long because of the negative market outlook that you have, and I am never that keen on shorting either.

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  4. Profile gravatar of rsotc
    rsotc March 10, 2017 4:18 pm at 4:18 pm

    Well yes & no. First of all remember that I’ll post what appears the be the most compelling trade setups, both long & short, regardless of my own market bias or whether I plan to take them personally or not. I do so in order to share the best looking setups, long & short, for those that might have a different view on where the market is headed than I do. The official trades (which are always posted on the front page which always include specific price targets & a suggested stop) are the trades in which I have the highest degree of confidence, based both on the technicals of that particular trade as well as how it aligns to my outlook for the market, sector, or industry that it belongs to.

    The other factor to consider, even more important IMO, is to be aware of the sector, industry, commodity, etc.. in which that trade setup belongs to. Even if I thought the market was a screaming short, I might be increasing the number of long trade setups for securities, whether stocks, bonds, commodities, precious metals, currencies, etc.., that have an inverse correlation, or at least little to no correlation to the broad stock market. Finally, if you have any questions or would like my to expand on my thoughts for a particular trade setup that I mention, don’t hesitate to ask me via the trading room, private message or in the comment section below if it is a front page post like this one.

    If you don’t have a strong opinion on the market or you either agree with my views that the R/R in the stock market at this time, despite the primary uptrend, is skewed to the downside yet you don’t want to start adding short exposure for fear of being stopped out, then the best thing to do is wait patiently for some decent confirmation that sell signals on most or all major stock indices as well as some of the key sectors have been triggered.

    Another option is to avoid any trade setups with a positive correlation to the broad market & just focus on trading the best looking individual trade setups, long and short (as that also helps to hedge your bets). Keeping things light for now is probably the best option for all but the more seasoned traders & the fact that I have been & still am expecting the broad market to correct soon yet the trend (other than the last week or so) is still bullish is one of the main reasons that the official trade ideas have been very light recently. That could happen suddenly, especially if we do get a sell-off that kicks off with a bang; big red, impulsive candles that clearly smash through any & all nearly key support levels, trendlines, etc..

    Until then, if your confidence on the next move in the market or any particular trade idea isn’t very strong, better to stand aside & wait patiently as taking trades when your confidence is low is only likely to cause you to close the position early, either at a loss before you stop-level or taking quick profits while leaving a lot more on the table.

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