Directing Traffic Flow During Earnings Season

April 27, 2017

Mish's Daily

By Mish Schneider


I have a fascination with traffic cops.

They keep track of which cars to hold up and which ones to let move forward. They watch pedestrians crossing the street.

They blow whistles. They often entertain, moving their arms and legs like dancers.

Anything that distracts them from doing their job can result in all-around havoc.

They put themselves in harm’s way.

Each day, the market has its own traffic flow.

Just as some intersections get crazy around rush hour, certain times in the market require more vigilance.

Earnings season is one of those crazier times.

Traders have to keep track of which instruments to trade and which ones to avoid.

Traders have to watch order traffic flow.

Traders may blow a whistle on a stock or hear analysts blow them.

I’m certain that all traders have at one time or another, gotten up from their chair and either kicked it or did a happy dance behind it.

If distracted, trader’s P&L’s could suffer.

How then, can traders avoid havoc during earnings season?

Although one must always trade with a plan (or traffic with a plan) earnings season requires additional decision making.

This earnings season, certain beat up stocks have reported above expectations and gapped much higher. Some momentum stocks have reported worse than expected and gapped much lower.

How can one traffic that type of order flow?

If interested in trying your hand at value investing ahead of earnings, let’s examine Twitter.

Twitter (TWTR) gapped higher after earnings. Ahead of the report, TWTR had held the 2016 low.

When there is a historical low to place a sell stop under, that gives you room to buy a sane position size even well ahead of earnings.

Twitter has had issues monetizing, but is the go-to place for pretty much everyone to communicate (think Trump).

If you were long, you were rewarded. Nonetheless, if Twitter holds its earnings gap and you prefer the safer route-no position into earnings, then you have a whole new trade setup.

Looking at a momentum stock, Teradata (TDC) gapped 11% lower after it reported. Although it closed better (down 8%), traders long into earnings got stung.

Where one buys a momentum stock makes a difference. Without a historical or significant low to trade against, buying momo most likely means you have placed a more arbitrary stop.

If you already have a cushion, the decision to hold could change. Perhaps you lighten the position just in case.

Bottom line, many will say holding a position into earnings is a crap shoot. True. Yet if you are an alert traffic cop, you can at least avoid grid-lock or worse, accidents.

S&P 500 (SPY) 239-240 resistance 235.25 key support

Russell 2000 (IWM) If fails 140 now, especially by the end of this week, I’d be cautious. Otherwise, through 141.50 could see 143

Dow (DIA) Resistance at 210-212. If 208.84 breaks, trouble

Nasdaq (QQQ) Well, Amazon and Google sealed this fate-new highs

KRE (Regional Banks) Unconfirmed warning phase.  50 DMA at 55.40 0 pivotal

SMH (Semiconductors) 80.00 support

IYT (Transportation) Confirmed warning phase. 165.90 pivotal

IBB (Biotechnology) Needs to hold 293.30 clear 300

XRT (Retail) 43.83 the 200 DMA and 42.50 key support

IYR (Real Estate) 79.00 the 200 DMA to hold. 81 resistance

GLD (Gold Trust) Support 118.75-120 area

SLV (Silver) Oversold-looking gat a 16.00 risk if clears back over 16.50

USO (US Oil Fund) Needs to get back over 10.45-10.50

XOP (Oil & Gas Exploration) Looks the most promising of the energy sectors if can hold around 35.00

TAN (Solar Energy) A weekly close over 17.60 will be interesting

TLT (iShares 20+ Year Treasuries) 121.38 support and 123 resistance

UUP (Dollar Bull) 25.50 area support on multiple timeframes holding

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