Almost every sector of the market has been affected by COVID-19, and the retail sector is no exception. Most brick and mortar stores were operating with very slim margins to begin with and this pandemic has only made their situations more dire. However, even though a lot of companies are reeling from Coronavirus effects, some retail winners are making money hand over fist throughout all of this. For this reason, I’m excited about the upcoming earnings season.
What is my set up going into earnings?
I’m primarily an options trader so I like to start picking stocks two to three weeks before earnings and have contracts expire before the reports come out. Why? Because what I’m looking for is speculation on a specific stock, not the actual results of the report. I’m aiming to get into them when the price is pulled back and riding the wave higher going into the earnings report, but not holding through the report because we don’t want earnings risk. I just want to trade the bullish move going up to the report. Stocks with lots of speculation and anticipation can have major bullish runs into earnings which will make them trade at a higher price. This is because investors want to be in the names before they report, in case they take off. This buying, pushes price higher, in a typical pattern.
A good example of this is AMZN (Amazon). If you look at the pattern on the daily chart of Amazon, you can see how it rallied significantly going into the earnings report. Admittedly, their earnings report was not as good as expected, but that didn’t matter because the speculation beforehand let me sell it at an inflated price and get out ahead. Fortunately, Amazon is not alone, and you can apply this logic to other IPO’s as well.
While AMZN is a great example, it’s already passed – now, we need to look for current tickers in which this exact pattern could unfold.
For this, I head to my retail watchlist, and, just not any retailers – but primarily consumer staples retailers that have seen increased demand. Some of my favorites are Costco (COST), Walmart (WMT) and Lowe’s (LOW), all of which I believe will see bullish speculation going into earnings, giving us, a trading opportunity.
Want to learn more? Checkout the segment below for my full analysis, including key levels.
Click here to see the full list of stocks I’m watching during this quarter of earnings.
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Danielle,
Question.
Regarding what happens after the earnings report is out.
You mentioned, assuming a favorable trade, coming in after the open and waiting about 20 minutes and buying the 50% implied vol. strike price ….. at what time frame ,month do you normally come in at.
Thanks so much.
Chuck