Earnings season is here, and with it come directional moves ahead of earnings reports. As such, I’m on the lookout for tickers with prior earnings moves that may result in a directional move in the next several weeks.
Let’s take a look at Cloudflare (NET) on a Daily Chart in the Earnings Hot Zone:
Using the Earnings Hot Zone
I use the Hot Zone to identify earnings patterns, such as multiple gaps post-earnings, pre- and post-earnings trends, and volatility patterns.
In this case, what you can see is that Cloudflare has gapped up twice in a row post-earnings, and not just a little bit, but 6.3% and 12.8%, which are substantial. This is particularly notable because last quarter, many strong companies, even with strong earnings, gapped down and fell after their reports, while Cloudflare traded higher.
Earnings Hot Zone Statistics on Cloudflare
Cloudflare also has positive Hot Zone stats in its favor, as you can see that over the course of two years, it’s made these moves in the Hot Zone:
- Pre-earnings 21-day average is +3.67%
- Pre-earnings 8-day average is +2.22%
- Post-earnings 8-day average is +3.15%
It’s not just the stats, though; it’s also the macro backdrop. In a continually increasing online world, the need for cybersecurity is ever-increasing. This backdrop explains these statistics.
Stats Combined with Technicals
The statistics are important because they demonstrate historical trends, but it’s the technical setup that identifies the entry and exit points and solidifies the setup. In this case, NET has a daily squeeze at the same time while it’s entering the Hot Zone. The Five Star System is all about identifying five points of confluence to identify key moments in time, and that’s exactly what we have here with Cloudflare.
