EarningsBeats.com Digest for December 28, 2020
|
Not All Earnings Gaps Are Created Equal
First, let me say that there's never a 100% certainty that a stock will move in the direction you believe. But, as a trader, I try to get the odds in my favor. One question that I
receive often is "how do you know WHEN to buy a stock after it reports strong earnings results and gaps higher?". Well, at the initial gap, there are a couple things I look for. I look to see how much volume is taking place in the very early part of the trading day to get a sense of Wall Street's interest in the stock. I also look to see if the opening price clears any major prior price resistance. If so, then I tend to lean a bit more bullishly. But what I really
focus on is how a stock trades after that opening gap higher. Why? Well, market makers are likely on the short side if results were strong and there's an abundance of buyers at the opening bell. That usually suggests selling after that gap higher. As an example, let's check out Accenture (ACN):
The good news is that ACN easily cleared prior price resistance and it was accompanied by heavy volume. That's where the very short-term good news ends, however. Note that market makers were in control by the end of the day with a reversing shooting star doji printing. I would expect more selling after a candle like that prints. Again, I'm talking about "odds" here, not a "guarantee". Timing is a VERY BIG part of trading, though,
so I try to be very careful with my entry points. ACN's revenue and EPS easily surpassed expectations, so looking for a solid entry point isn't a bad idea. I've marked the two key price/gap support levels at possible entry considerations. The 20 day EMA, currently at $252.46, also would be a consideration for entry. While ACN is part of the very strong software group ($DJUSSW), note that it did fail to clear relative price resistance with its earnings report, but does
still remain in a relative uptrend since its October relative low. The bullish trifecta here would be (1) holding key support that I've identified, (2) breaking key price resistance just above $270, and (3) breaking out on a relative basis vs. the software group.
Happy trading!
Tom Bowley, Chief Market Strategist
EarningsBeats.com
"Better Timing. Better Trades."
|
|
|
