Hi Traders!
Earnings season is here, and the first reactions are already in. The banks reported this morning, and ASML and TSM are next. I care more about what the charts do after the numbers than the numbers themselves. The expected move is already priced. I am watching how price reacts at support and whether the move stays inside the expected range. You can pull the full history and expected moves at optionsearnings.com.
JPM and GS: The Gaps Tell the Story
JPMorgan missed. EPS was $5.57 against the $5.94 estimate, and revenue was light. Equities trading was strong, but fixed income lagged and management said client activity slowed. That is a mixed report, and the closing reaction was not favorable.
JPM initially gapped up overnight. In the intraday chart below, it had already sold off toward $331 and was trading near $334. By the end of the day, the daily candle had developed a large upper wick as sellers came in on high volume.
The stock failed at the 34 EMA on the daily chart. Earnings were not the catalyst to reverse the downtrend that has been in place since JPM topped out in August. This is not a positive move for JPM. To me, the rejection signals more downside ahead.
The Earnings Hot Zone average is only about 3%, and gaps up have been rare. Post-earnings momentum has been basically flat.
Goldman was the clear beat. EPS came in near $17 against a much lower estimate, driven by equities trading up 72%. But strong earnings did not translate into a lasting rally.
GS gapped up 3.2% overnight but closed down 0.23%, giving back all of the post-earnings excitement. The earnings reaction did not save the stock from its downtrend.
On the daily chart, GS remains below the 21 EMA and 34 EMA, as well as the 50 SMA, 100 SMA and 200 SMA. With price below all of those moving averages, I expect the stock to remain in a downtrend unless and until we get another bullish catalyst. This is exactly why I wait for the price action instead of trading the headline.
Both bank charts are telling me the same thing: earnings did not reverse their downtrends. An overnight gap means little if sellers erase it by the close.
ASML and TSM: Expected Moves First
ASML reports tomorrow. The Earnings Hot Zone average is near 6%, but this setup is all about the expected move, which is $80.25. The critical area of support is $1,700.
A downside break below $1,700 would not be ideal, but as long as the decline stays within the $80.25 expected move, I would still expect it to recover. A downside move of 1.5x the expected move or more, however, can signal a trend break. To the upside, a clean price target is $1,800.
I am also watching the EUV capacity plans and whether the margin stays in the guided range. For the trade itself, the expected move and the reaction around support come first.
TSM reports Thursday before the open. It has a 5/5 star rank and typically trades higher into earnings. That move has already played out through a strong pre-earnings momentum trade. It also generally gaps up after earnings, but that pattern faltered in the last two quarters.
That is why I am watching the $16.52 expected move and the critical support zone between $425 and $435. If TSM is a little soft but stays within its expected move and holds that support zone, it is still a buy for me. I will stick with my buy-the-dip focus in semiconductors.
How I Am Using This
The banks gave us the first read, and the closing reactions were not favorable. JPM failed at its daily 34 EMA as sellers came in on high volume. GS gave back its overnight gap and closed lower. Both downtrends remain intact.
For ASML and TSM, I am watching the expected moves and their critical support zones. My focus is still buying the dip in semis, but if both stocks break support and each moves 1.5x its expected move or more to the downside, that would change my plan. That combination would signal more downside momentum.
Support and the expected move first. Then the trade. That is the whole process.
Full stats and live expected moves are at optionsearnings.com.
