Last week when we last spoke, I focused on the importance of acknowledging earnings season, and the volatility it tends to cause.
I crossed my fingers and hoped for a market pullback on Monday and Tuesday this week, however, Mr. Market doesn’t always give me what I want…
And the market continued stair-stepping higher.
The main reason I wanted a pullback was so I could obtain better entries, with a stronger edge. But, as a trader, we have to trade what the market gives us — or stay on the sidelines.
I unloaded a fair amount of positions last week, as I intend to actively trade earnings reports, and even more importantly, the 2x momentum trades that happen after the fact. I’ve got my eyes peeled for new opportunities each day. (If you’re interested in doing the same, I discuss several questions and strategies surrounding earnings within Simpler Foundation here.)
So, where is my mind at now?
I have a sneaking sensation that due to the low expectations this quarter, the after-earnings moves will be explosive for both the heroes and the zeros. Yes, there’ll be companies that disappoint, but the market leaders are showing us the way higher. The first week and a half of earnings has been overwhelmingly positive. It’s this positive news that I’m looking for to send the S&P to $3,000.
S&P Futures — Daily Chart
Stones throw from new, all-time highs, and my ultimate price target of 3,000 and then 3,130.
What does this mean as far as how I’m trading right now?
Well, I don’t abandon my typical Five Star/Phoenix approach, but I do transform it a bit into a shorter-term time frame trading style. I focus more on day trades, along with buys after a hit on earnings.Phoenix, I discovered, can be used just as well during Earnings Season as it can during any other time. Why? Because, the Phoenix stocks are typically the ones that report well on earnings.
Why? Funds aren’t stupid. When they’re continually buying up shares of stock in specific companies, especially on any market pullback or correction, they maintain a strength in their trend. These companies also typically perform well on earnings.
This gives me an opportunity to trade the report. If, for instance, the report contains something investors don’t immediately like, and it dips on earnings — within the expected move — these Phoenix stocks are the perfect ones to buy on that dip. Let’s take another look at NFLX.
NFLX — Daily Chart
Take NFLX, for example. We’ve talked about NFLX several times, and how it’s my favorite Phoenix.
After the report was over, the move was lackluster, falling just a bit, but within the expected move. However, in after-hours trading after the report, it dipped $50 and immediately sprung back up. Lots of buyers got a discount. Then, within three days after the report, it traded $30+ higher. This is how you use Phoenix to trade earnings (even if you don’t want to trade the report).
So, now what?
Well it’ll be a busy week, but I’m focusing on trading Phoenixes to the long side, both on earnings and after-the-fact. I want to know from you: where are you focused this week? What earnings questions can I answer for you? For the next episode, I’m planning to make a video answering your most asked questions.
So ask away!
No questions at this time. My earnings trade this week is an IV Crush on AMZN. Put credit spread at 1800/1797.5 for .51 premium on 10 contracts. Entered the trade on Monday. May get out before Friday if the stock price keeps going up and I can get out with 80% profit. If not, I’ll wait until Friday morning and take advantage of the crush. Thanks Danielle for your patience and insight.
Hey Dick,
Sounds good. Looks like your PCS will do just fine. With put credit spreads like that, if you can especially time them with pullbacks and get them a little closer to at the money then your risk/reward will be better as well. I do like this income style type trade though! Hope it worked out well for you.
-Danielle