January 27, 2013
Uncategorized
By Geoff Bysshe
Last week was a big week for stocks. Earnings season is now in full swing, and earnings surprises have highlighted many stocks to focus on for trades in the coming days and weeks.
I find great trades by letting the volume leaders serve as a way to easily identify which stocks to focus on out of the hundreds of earnings reports that hit the market each week during the several week period known as “earnings season”.
Here’s a simple process that turned up many interesting setups created positive and negative earnings surprises. This quick filtering process has brought to my attention names like GE, STT, SLB, XLNX, MS, COH, CREE, GD, MLNX, NFLX, EFII, and more as stocks to trade for big day trades and swing trades over the next several weeks.
Over the last week I’ve been posting the first step of this simple filtering process to this (HotScans) blog. The first step is to find the leading stocks by volume that reported earnings prior to the trading day. These are the stocks that reacted in a real way to their earnings report.
Next I look at the daily and weekly charts to find the stocks with patterns that could lead to major reversal or breakouts. Finally, I take a look at the headline numbers of the earnings reports simply to know if the company beat or missed expectations for earnings and revenues. I’ll also look to see whether or not there was any change in the company’s guidance for the same numbers going forward.
This process is not very difficult since I’m using HotScans to narrow the list of stocks to consider to only the top relative volume leaders in a preset list of stocks that are reacting to earnings for that day.
This process is intended to find stocks to trade as soon as the day after the earning reaction to weeks later after the stock has digested the initial reactive move.
So here’s a quick assessment of some of the names I listed above. Check them out on a daily chart with a 50 and 200 day moving averages displayed, and on a weekly moving average with a 65 and 200 week moving averages displayed.
GE – It’s a slow mover, but the weekly chart turned up in 2012 and the consolidation after the earnings looks like a healthy cup and handle pattern that bottomed at the 200-day moving average.
STT – It’s had an impressive 20% run in the last couple months because the breakout over $50 was out of a 3 year base. The big picture now offers a great potential if it pulls back into the $51 area, or if it pauses to consolidate around the $56 level and then breaks out again. The next leg up could be even bigger than the last few months.
SLB – Earnings created a big up day then the following four days continued higher. Like the STT analysis above, it is well positioned to play a pull back into earnings day support, or look for a consolidation and break of a major resistance level in the $81 area.
XLNX – I’m a little concerned about its lack of growth in EPS and revenues over the last 2 years, but it has been consolidating for in a tightening weekly pattern for this time. Now the $37 area is a huge breakout level. Earning didn’t beat by much, revenues missed slightly, and the conference call seemed to have lower guidance expectations, but the reaction day was up on good volume. There are bulls in this chart.
COH – If you like to look for bottoms, this gapped down huge, but it has stopped at the$ 51 level which has been key support in the past two years. It also lines up with the 200-week moving average which this stock has respected in the past. It’s time lookout for some good daily reversal patterns with low risk entry points.
CREE – The big gap higher breaks out of a one year base with a high around $35. Since $42 is the 200-week moving average this is a good time to watch out for consolidation or a pull back before moving higher. The trend in revenues has been up steadily for 18 months, so if earnings now turn up the whole picture looks great.
GD – The earnings day itself is what’s particularly interesting. Initially it opened lower, but then it rallied sharply on the biggest volume it’s seen in 2 years. The daily chart has tight consolidation in new bullish phase. Plus, a break of the consolidation will break a 2-3 year weekly wedge line.
MLNX- Like COH above, this is another bottom fishing attempt. 2012 was a big round trip from a breakout at 50 to a top at 120 and now back down to 50. Its significant pullback in EPS appears to have justified the top, but is the sell off over done? Last week it slightly beat both revenue and EPS consensus numbers, but the noteworthy news is that it had the biggest volume since July of 2010, and the fact that it is back down to the level from which it began the massive 2012 breakout move that led to the stock doubling. Also noteworthy is that its earnings day high of 55.11 exceeded the last big volume day high so trading over this level could indicate that a bottom is in place.
NFLX –The big news here was not the earnings day so much as the day after! After its incredible 40% gap up on earnings, the following day it posted an even more impressive additional 14% move on almost double the volume of the earnings day. This suggests the bulls see a real change in this stock, and there should be more upside after a consolidation period.
EFFI –This is a massive volume breakout of a 2 year consolidation range with earnings that look stronger than when the stocks was trading 40% higher. I think it’s extended here but the earning day range could have created a low to trade a pullback against.
Now with a big the backdrop of this type of big picture view for each these stocks it’s time to keep tabs on them for trade set ups based on daily patterns. if you're a part of our Complete Swing Trading Mastery Program with Mish then you'll know exactly what to look for to enter the next trade. I’ll put them in a HotScans portfolio to easily be alerted to any unusual price or volume moves, and I’ll pay extra attention to them if they show up in our Slingshot Setup Alerts that we run each night to find good low risk trades.
Regardless of your trading style, remember, the idea is not to over analyze every big mover on earnings day. Start with the big volume earnings reactions, and focus on the big picture in the charts. If the patterns jump out at you then dig deeper. The process is intended to save time, and find great trades not create more work.
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