Post-Earnings Momentum Trading

Retail Earnings Week

This week, we have a slew of companies reporting earnings, including:

  • Home Depot (HD)
  • Target (TGT)
  • Advanced Auto Parts (AAP)
  • TJMaxx (TJX)
  • Walmart (WMT)
  • Macy’s (M)
  • Ross (ROST)
  • Gap (GPS)
  • BJ’s (BJ)

Regarding retail, there is a big difference between the heroes and the zeroes. Many losers are already in downtrends, have struggled over earnings and post-earnings recently, and are unlikely to return to an uptrend merely based on a simple report. It’s these tickers that I look to for potential ‘Earnings Destruction’ setups.

What is Earnings Destruction?

It’s an earnings setup that can be used pre-earnings, over-earnings, or post-earnings on a stock with fear surrounding the earnings report (for good reason.) Sometimes, if there is a technical setup, I will trade the stock in the weeks going up to earnings to the downside as investors bail before what could be a terrible report.

Or, it can be traded over the report (for the riskiest of traders). Of course, the problem with this is we can never know for sure if the company will happen to do better than expected, and the stock may rally. That is why the way of trading with less risk is to wait until after the report. Some of these Earnings Destruction tickers will initially rally, but that rally ends up being incredibly short-lived.

This is why traders using an Earnings Destruction watchlist can come in post-earnings, look for tickers that didn’t pass the sniff test, and are rolling over post-earnings. This is because sometimes investors will wait, hoping for an excellent report to change the trend. And, when it doesn’t come, they bail, which results in a post-earnings momentum move. Anytime this can be combined with another technical setup, like Fibonacci or the squeeze, it’s even better!

Check out an example in my video on Tyson Foods.

Which tickers are you trading this week? Which ones do you think are most likely to roll over post-earnings? Let me know on Twitter! 

P.S. Want to learn more? Check out our Simpler Trading Black Friday Sale! Click on the image below to get discounts on some of my top classes and tools!

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