How To Take Advantage Of The Earnings Catalyst

David Blair

A catalyst can provide what most traders I know prefer…volatility, or a higher than average increase in price movement.

Trading Catalysts can range from potential drug approval, sales numbers, analyst day meetings, product announcements, etc. Some catalysts have known dates (e.g., Apple $AAPL product announcements, analyst day meetings); others can occur without warning (e.g., drug approval, sales numbers).

I find earnings season to be a great known catalyst for trading stocks, particularly in a bullish market, as prices tend to gain bullish momentum ahead of the earnings announcements. Earnings season are the months where the largest majority of companies report their corporate earnings, which are the months of January, April, July, and October.

So how do I trade “earnings catalysts”?

Without getting too specific, I use the following as a guide for trading earnings catalysts:

  1. Trade the EXPECTATION; Sell BEFORE the EVENT.
  2. 2-4 WEEK TIMEFRAME ahead of earnings.
  3. The price develops a SUPPORT area.
  4. The price BREAKS a downtrend.
  5. The price BREAKS OUT of a resistance area.
  6. The price develops a FAST MOVE FROM A FALSE MOVE (false breakdown).
  7. Basket of stocks with HISTORICAL BULLISHNESS ahead of earnings.
  8. Set specific, well defined targets (or use a trailing stop) for exiting BEFORE earnings.

Let’s take a look at just a few of the dozens traded this earnings season (previously posted in real time with charts on my StockTwits feed – @crosshairtrader). I’ll provide the original chart followed by the current chart. I use WEEKLY and DAILY charts, or a combination thereof, for trading. The vertical line on the DAILY chart indicates the earnings date.

Avis Budget Group (NASDAQ:CAR): Avis’ stock (CAR) developed strong support at the 2016 lows. Beginning the middle of May this year the same support held, indicating that previous demand was still in force. In late June the price broke a recent resistance high and reversed a DAILY down trend several weeks ahead of earnings. Previous swing highs were potential targets.

CAR WEEKLY chart from early June 2017

 

CAR DAILY chart breaks resistance and a down trend with pre-earnings targets.

 

CBS Corporation (NYSE:CBS): In late June, CBS stock found continued support (“buy the dip”) along its bullish WEEKLY trend. The DAILY broke through a recently developed resistance area a few weeks ahead of earnings nearing its all time high resistance target.

CBS WEEKLY “buy the dip” trend support from June 2017.

 

CBS DAILY chart breaks recent resistance with a pre-earnings target.

 

Alcoa Corporation (NYSE:AA): A few weeks ahead of earnings AA broke its DAILY bearish down trend and recent resistance. Potential targets were the previous swing highs.

AA DAILY breaking its recent down trend and resistance level ahead of earnings.

 

AA reached its pre-earnings target a few days ahead of earnings.

 

Amazon (NASDAQ:AMZN): Amazon stock price broke out of a recent DAILY resistance area to print all time highs a week ahead of its earnings date. Trading the expectation and selling BEFORE the event worked out well.

AMZN DAILY breaking to new highs several days ahead of earnings.

 

AMZN current post earnings chart

 

The above are but a few of the dozens of examples I could provide but suffice it to say that four times a year earnings season can provide the astute trader multiple opportunities for capturing bullish earnings momentum.

Going forward I will link back to this post when referencing potential earnings catalyst opportunities.

If you are like what you see, you can access more of my work over at CrosshairsTrader.

 

Twitter:  @crosshairtrader

No positions in any of the mentioned securities at the time of publication.  Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

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