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Ep 33: Learning How to Trade During Earnings

April 23rd, 2015

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Welcome to this week's Market Rapid Recap and this week we're going to be talking about earnings. It is April 23rd 2015 and there are a lot of earnings that have been happening in the market so that's what we're going to cover.

We’re going to to talk about the market, how it is a big picture and we'll just talk a little bit about earnings and also a few stocks. I'm going to try and shorten this Rapid Recap down.

Lately they've been about 30 minutes long but I’ll try to get it back down to about 15-20 minutes at the most just to keep things a little more condensed for you all so that way you save some time.

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Let's get started and let's just get right into it. S&P looking at the market right now actually earnings are coming out as we speak on Amazon, Google. We got the Starbucks coming out.

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Here's your MS  NBC you know the earnings popped and so forth you know, you can watch and see what happens with earnings but me personally I don't trade earnings just because with earnings there's a lot of unknowns and when there's unknowns what can happen is the stock can skyrocket higher or it can go much lower obviously.

With that there's a lot of added risk. Since we don't know if a stock will explode to the upside or to the downside you have to be really careful. For example looking at Netflix example this one skyrocketed further on earnings.

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Looking at CMG this one went down. What do we do? 50 points. Netflix popped higher with 77 points you got to take it all in as it's a guessing game when it comes to earnings and we’ve talk to somebody here earlier today about earnings.

We were talking about Amazon which Amazon right now is releasing earnings and you know people talking about it hyping it up this and that. The only time I would personally play earnings is if you got into the stock. Let's say at 298 to 300 maybe somewhere in this region and you took most or half of your shares.

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Let's say eighty percent over here and then now the stock is isolating you're playing with the house’s money and you know you're up 50 to 70 points and now okay well if the stock dips 20 to 30 points, 40 points you're okay with that.

If it went down to 355 because you got in at the 300s you'd be okay with that and you're just letting about 10 percent of your position and see what happens. You know you're taking a chance on it but really it's just a crap shoot it's now worth it. Instead what's better is to wait for the earnings to happen evolve and then see what happens after that and then you can get into the stock.

If you're planning to hold the stock more than 20 minutes now what's the rush for that one extra day you know and usually that's the greed that starts speaking to us.

I will talk about a couple of positions right now, just what's happening so overall the S&P 500 this is typically what a lot of people watch, money managers. We’re reaching the highs and you know we pushed against the highs.

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If you take a look at the SPIDERS, what happened is we went up and then we rejected those highs and we're doing so on little bit lighter volume we’ll see when the final at the end of the day probably around 8 p.m.

We’ll see the final true volume on TC 2000 because I don't think this one comes out I'd have to look at my true volume there with the E-minis usually the E-minis will give you the true volume but right now I have the software open.

Even if it comes out to be a hundred million there that’s still not a ton of volume to push the stocks and the energy of that market higher, typically the market is led by the composite.

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Nasdaq Composite where the big companies are. Looking at this one, this one is starting to break out and we don't see the volume here as you can see for that day. Typically the market’s led by the composite.

By the composite the problem here is that we want to see follow through. So this one day doesn't make a trend, if we look at the overall week we want to see this powering higher. Looking at the longer term picture, let’s say multiple days, multiple weeks. We want to see what happens in the next couple weeks and how this pushes the stocks further.

If you’re wanting to put on a trade when stocks are breaking like this you could nibble a few shares and then you slightly below that line as your stop by nibble let's say you normally put on a thousand shares now you only put on 200 to 300 shares and then you let the stock go and see what happens.

If it follows through the second or third day then you can add to that position and get in your rest of your 500 to 700 shares share so that way you have your full position.

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Right now it's still a little bit early, we have earnings coming out SPIDERs you can see are rejecting not just once but looking at this overall you can see that we tried to get up around, let's see January, February and March.

We also tried here in February so that was the rejection and then right here also right now we haven't really pushed through. Looking at the Dow Jones, Dow Jones is a weak index to really look at there's only 30 stocks doesn't really represent a lot.

Normally composite is the main one you want to watch. Right here looking at this, we didn’t even push against there and then we also have the IWM which is the Russell,  Russell 2000 or you could do the RUT which is not pushing against the highs but you know the gossip will be of course the  Nasdaq's.

NYSE is heading the ties so yeah a lot of hype on the news, what's going on, what's happening but honestly for me it's about individual stocks.

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Looking at the overall market as a picture, the weekly, the monthly, how has it been? What it's doing then I take a look at this and I say okay great. That's what they say but prove it to me and then I look at the individual stocks.

I’m just going to look at some very quick stocks for you and just actually talk about the exact positions that I have in the stock. So I’ll only mention those that I have along with just a few others about earnings and what we've been watching lately.

We're not going to talk about a bunch of stocks and setups just talk about a few positions so this week actually I have very symmetrical and very balanced portfolio which is very unlikely but I will share that with you here in a minute.

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Looking at what's happening here we got Google, it’s actually reporting right now and we'll see how that news comes out for tomorrow. I don't recommend you getting in after hours, I don’t recommend you getting in premarket because what can happen is that this can take the stock down further even if earnings are good or bad.

It doesn't matter what the earnings is, what matters is the reaction and people’s sentiment to the earnings and if you didn't get a chance to watch this week's little lesson video on the Tradersfly or YouTube website, take a look at that over here and just go ahead and go to the website over there and you can see why the stock sell-off even if earnings reports are great.

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Watch the video if you don't really get that concept but stocks can still sell off even though earnings can be great and notice what happened here with Facebook. Look at this bar right here. One of the key signals actually was the weakness over here on 3/25/2015.

What happened here with Facebook when these earnings basically came out is that the stock here in this first half hour. First half hour a lot of beginner traders get into it. A lot of beginner traders this is where people go wrong.

The beginners get in and then the stock and the rug is ripped out from under you. It’s BOM stocks goes higher, the rug everything gets taken out right from under you and that's where people start getting worried “Oh, what's wrong with me what am i doing wrong”, “why am I bad trader?” you know that's where the issue lie.

If we look at this here's A pattern, here’s your B pattern, here’s your C pattern and there's your D for those of you that have took the technical analysis course. That’s the pattern that's creating on the five-minute.

Normally I don't watch the five minutes, it’s really irrelevant but you can see how that stock popped higher and now it's heavy sell-off volume. Bears pushing it lower. That's typically what can happen.

When you're talking about these Google, right now even though premarket were trading… where are we on pre-market on Google let me see here. I don’t have the pre-market here. I have to look that up.

Google's trading 11 dollars up, 558 so we’re up at let's see right around this region right here at the moment. Now what can happen tomorrow is we're hitting this level and the stock can sell off further or it can power higher,  risk to reward risk to reward you're always watching but give it that first half hour at least to digest.

Don’t jump in it that first 30 minutes that's where a lot of people that have been in the stock are trading and trying to adjust positions the money managers.

So you can get whipped round especially on the stock like Google and who knows if things even change as these reports get digested you might even see it only up five dollars tomorrow morning.

Be wary,  be cautious and just avoid itp normally like I sad if you're doing these trades, here was again A to B, B to C and C to D pattern let me show you that in case you’ve missed it so here's another one A to B, B to C and C to D. There was a trade for you.

Even if you trade it just here in this little range that’s twelve dollar move, thousand shares twelve dollar move you guys can do the math its good money that you can make right there on these runs simple runs and then be careful as the stock moves against you're out. If it moves against you, you’re out and before earnings you don't know which direction it's going so you’re out, ninety percent of your position just like I mentioned with Amazon prior to those earnings report so don't trade earnings.

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Amazon right now is up about 8 bucks, so it's at around at 397, 397 or so right around here. So that's where we're trading but again we want to see what happens here we have overhead supply at 406 so until it clears that 406 level, I mean you're right there the potential to make a few dollars to the upside and then possibly rejecting it versus a potential to get back down to three hundred or 280 is more likely so risk to reward. Look at the risk to reward

Take a look at Microsoft, also coming out with earnings possibly one stocks get into these gaps these gaps oftentimes get filled so again be patient wait for things to digest and why I’m mentioning these stocks is because of the positions that I have because of the positions.

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I've talked about four stocks really that have released earnings and it takes time to digest these stocks to digest the energy and digest the move, the reports and then stocks breakout. The positions that I have right now like I said to, I have very symmetrical positions on again which is very unique but I have two short positions and too long positions.

What I have for the long side is CSX, I have IBM and then I have short Yahoo and we also have short CMG. The reason I take on these positions for a couple different reasons, for one it's really about watching how stocks evolve, how they moved the patterns and if you took the technical analysis course you'll see exactly what I'm talking about.

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Let’s break these down one by one. Yahoo, right here is a good size position that we have we’ve peel some off in the strength, the earnings came out the other day so earnings came out, stocks started to digest.

Now we're already looking at the stock we’re already looking at the stock to potentially go short here was the A to B, let me take out to the weekly so it's easier to see if you're new. Here we have our it A pattern to B, B to C and I'm looking for it to come down over here to D or if not right at least right here right at least to that level to potentially to get about forty-two it’s a buck but that move is clean the pattern is clean so it's not a huge move.

I like moves that are little bit quicker but the pattern that was very clean to me and the volume signal noticed the volume signal there after earnings was very clean so I couldn't resist. I got in short on this one if we break this little area 43-42 it could confirm the move but you know we’re already a little bit off just because I'd like to see wider price spread or wider break.

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Right now it's a little bit more of risky because of the wider price spread isn't coming in yet but sometimes it takes a few days and those of you that know sometimes what happens with the stocks is what they'll do is they'll come back up here to test these lines which is called an internal trend line and then they'll reject it so we'll see how things play out here in the market the next few days but already took a little off the table just two play with some houses money and now just watching those lines, simple.

You saw that A to B, B to C and C to D pattern that's potential there so if it stops me out at stops me out. Then we also have short side CMG. CMG earnings were also a few days. CMG is very volatile so it trades a little different. Notice a lot of people stepping in right there watching this trend line, right here pounding on it.

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If we take it out to the weekly it's a little bit easier to see guys. Looking at this trend line right here we’re drawing our line across BOM stock takes it out heavy volume. I’m also looking at a couple different things if I look at this overall picture, take a look at this overall line of volume increasing each time so that's also something that I don't like to see so that creates a great short opportunity.

If we take it to the daily, notice this was the weekly. So this was in 2014, in the daily here’s the pattern right here every time 1, 2, and 3. First one 2.3 million shares, next one 2.5 million, next one 3.8 million so here was our move if you were looking at this chart right there, look at the volume here look at this heavy volume stock came back up to retest that level retested it and then sold off.

Next day same thing stock sold off move back up rejected it. This one was more volatile so again in just a few days you have you know 5 to 6 bucks of gain even if you're waiting for that safer clearance right there so even though it sold off after earnings about 43 to 53 dollar, really is a seven dollar gain, here five dollar gain depending on where you entered it.

Even if those three dollars it’s a clean run, the setup is clean so it looks good for lower prices for the time being especially if you take it out to the weekly just some key signs.

It is a shorter timeframe play because the stock has been powerful. Now the other thing I'm watching is that the projected move from this stock those of you that know the projected move A to B should equal C to D, the projected move it has been hit.

So when the projected move is hit something else happens digestion consolidation or a little sell off where we can get to somewhere around this region, nothing be wrong with the stock we can have a fifty percent retracement, 50 percent sell-off and then the stock can power higher. So what am i doing? I'm capitalizing on a potential move.

It could be a potential move where the stock only goes down this much, right here where the stock could actually just go down a small bit but in this small bit that’s 150 points. Relatively speaking that’s small for this stock. So where can it go? Healthy retracement for a stock like this or any stock 50 percent, draw the Fibonacci, 50 percent will bring us back right here.

Look at this level this is in the Fibonacci section, comes down to your right here. Let’s do the daily, daily will bring us back fifty percent right here 487. Look at that, how it hits that level really nicely take it out to the weekly look at that line right there, let me bring this down look at that from the lows here to the highs here fifty percent comes right there isn’t that beautiful?, great setup.

We have these two positions on short,  I'll show you what I have long, we got CSX notice this descending trend line you might be wondering why did I get in it, what was I seeing? Well first off descending trend line is what we see. When you see the descending trend line then you’ll also take the stock out to the weekly.

Now we are in the weekly so take a look at this. Looking at the week lame you can see that the power move has been higher small retracement and again what can happen from there well now we can power higher. So you are waiting, you are waiting for that consolidation period.

Here it is, BOM move higher retracement power higher. Looking at earnings, earnings were, the 15th right around this volatile area so even after earnings that stock moved higher and there you sit patiently you don't chase but notice this volume.

Volume came in look good. Stock rejected those prices this was our descending trend line right there so looking at it on a thirty minute stock rejected it, wait for that confirmed break, right here is your entry point. Solid game for a dollar and fifty win right there.

You don't capture that entire run but it's a great setup, great trade heading in the trend line take half off. You know if you had a thousand shares BOM made a dollar thirty on that thousand shares. Very simple very clean-cut trend line, very good setup and look good for higher prices.

Ten thousand shares again you know dollar and thirty run, great setup and you can't go wrong with it. Then finally we got IBM those of you that have been following me for a while and have been following the critical charts you know that I watch this one closely, big blue IBM.

It’s typically where IBM goes, the market goes. As one trade’s large it's a point two million shares on a day-to-day basis, eight million, five millions on average so the trade is huge and we've been watching this one and I've been shorting this one a lot of times when it comes to this trend line level  that is because of the overhead supply.

Now what's been happening after earnings, after earning sometimes things evolve and do something different. Also since we've been shorting this one when it comes up here it popped here then we sell off. Pop here couldn't even get high enough sold off, popped here again sell-off, popped here and again a sell-off.

Even if you got in at those points three or four times you would’ve made let's say three dollars there, six dollars there. Let's just say got in here six dollars there, so that’s twelve plus three that's 15 and then here again another ten dollars that's 25 so that’s twenty-five dollars that you would have made just from shorting the stock from this little move.

After a while shorting the stock time and time again you have to be cautious because we've digested first five months or so and the longer you digest the more that things build energy. As energy builds things could go to a different view, a different side. So when you see the earnings notice this, broke us out of that little our resistance line.

It didn't have enough juice to take a higher, sold back off tried to get higher again, didn't have enough juice and then the next day got in BOM stocks skyrocketed, so what happens here. So here it is so when you get into this trade you get into this trade right after that break 165.40, 165.60 right there on that break.

Stock didn't have the follow-through sold off. You got stopped out first day you got stopped out, next day got into the stock and stock coming back here stop again, you're risking a dollar to make potentially to 178, right? So that’s your potential, that's a conservative potential so we're looking for 178.

Taking it again getting closer view stock went above it you’re in it holding at that support and then the stock broke out. Broke out with heavier volume and then you let it sit and ride but on this trade you had one failed opportunity and with the failed opportunity sometimes that happens you get stopped out and try again but you got to remember that you risked one dollar here, one dollar to potentially make all the way to 178.

The potential reward from 165 to 178 is at 12 let's just say 10 dollar move. So if you had a thousand shares, ten thousand dollars pretty simple run right there, risk to reward so you're risking one dollar to potentially make ten. So you could have been wrong ten times and if the run worked out there you go you would’ve been ahead.

Those are basically the positions that I have, that's the way I’m trading at the moment. I don't like to trade fifty different stocks it just ruins your focus and your mentality you know as new opportunities arise they may rotate some positions but you know we got Yahoo who short right now working out fine you just sit and hold it.

We got CSX to the long, we got IBM to the long and we got CMG to the short. You know going to watch how things come into play with Amazon at this level let me just delete all the drawings here for Amazon.

I'm going to look at Amazon right here on this level to potentially go long if more volume picks up as you can see right there and that is only if it clears that level if it doesn't clear that level then it's a potential to actually short the stock if it rejects that level because that's a very key level.

You can see it rejected it played around within that region for 1.4 months so it consolidated right here. So there's a lot of energy there so if it doesn't break through they can't take them higher, it’ll break them down lower so we will short it if it rejects it and gets to that level but for the moment no need for me to trade it because the potential to make just four to five dollars on the trade or that stock and sell off to 340 it's just not worth it.

We’ll look at Google as well; we'll see how this one trades. This one I like to give a little bit of time to digest because it's a little more volatile, again we're looking at a couple different things here on Google specifically here this line right there to see how that gets into that, how it clears in to that and we’ll see how that plays but again no position on Google, no trades on Google.

Facebook you know this one took it lower, if it breaks below this eighty dollar level. Let’s right here 80.51 heavy volume if it continues to accelerate it could be a good potential short opportunity. Again something to watch for the stock has had a huge run but the volume take a look at this volume contraction right here descending.

So if we start seeing a pickup in bearish volume to the upside like this we start seeing an increase of bearish volume it could be a good opportunity to short that stock at least for a smaller time frame, for potentially right here for something like this, for one point eight months so holding the stock for one month to two months and that could give you 13-point run, sixteen-point run in the stock, 16-point run is a great run.

There’s nothing wrong with that especially with the highly liquid stock. Highly liquid stocks I love trading them. 73 million shares I mean you can get in and out at these very easily. Same with like a CSX 15 million shares traded so it's very easy you can put on 5,000 to 10,000 shares and you know nobody really sees a thing.

That's what the big boys like; I like those stocks as well just because it's easier rather than trading smaller companies that are a couple dollars that barely trade anything that barely trade any liquidity. Let me show you what one of those looks like.

Let’s just put up the US common stocks you can look at TC 2000 the US common stocks it'll show you will do volume store and you can see some stocks that don't trade a lot of volume. So here are some stocks that don't trade a ton of volume you can see the two dollar they barely trade anything, just look how choppy their charts is.

A stock that trades 400 shares, a thousand shares you know just look at these charts. I mean where do you trade this one, It’s up at twenty six dollars it’s down at eighteen dollars. I mean how do you trade these things, I don't know so it's really a manipulation game for these kinds of things and that's why I avoid them but when you look at a big stocks big companies it's all about crowd behavior and most people they do with the crowd is.

Most people they follow the crowd, a human psychology we’re talking to somebody about a restaurant and you know most people that go to a restaurant they will order the same thing time and time again if they go to that same restaurant or within a few couple different things they're scared to try new things and that's just the way it goes.

The same thing with stocks most people get scared at different price points, they get uncomfortable out of other price points they like certain stocks they get out of other stocks that they don't like those stocks.

I have tried to keep this one under 15 minutes, it’s just very tough I’m going to try and do better next week so we’ll see how that pans out.

There you go regarding earnings. I hope you got a little bit out of this video. Don't trade earnings it’s just can really burn you. I really don't recommend it again here's a little earning sheet for you if you're still looking at some other things.

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as far as the oil stocks like the Exxon Mobil that we had before, I got out at most of those positions they were acting weak. So for those of you that are watching those like the Schlumberger I got out of a couple those positions to tackle on the new positions. So the Exxon Mobil's, Schlumberger these things are they're not moving.

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Normally I'd like to see couple of days follow through and the volume started to die down so those are those are gone. Still got Tesla, Tesla was popping but I didn't trade it, I did other positions but we have earnings coming up so some volatility that may come.

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That's basically the Rapid Recap. Thanks again for joining me. Right now we're still working on a book or two here for shorting just like the money-making stock charts for our swing trading to the upside. We're also doing this similar book for shorting the market and then maybe we’ll do a penny stock one as well.

I’m not a huge advocate of penny stocks but maybe some people would like to just learn about penny stocks in terms of how they move and just look at some charts. So I just love studying charts the way they move the markets, the way. The charts are basically a reflection of the market.

They are reflection of what has happened and gives you future predictor of what's possible because of the energy and that's what charts do, it's a reflection they don't have emotions, they don’t judge it just reflects what has happened.

We need to make the most use what we can out of those charts. So right now I like creating these books and will be probably doing a book since summer time is lighter on trading, the trading volume and so we’ll focus on doing a book or two, to a couple of books and then maybe towards the end of the year.

I’m still trying to plan out this options course it's going to be huge from already the notes that I have on it, I don't know right now I'm guessing it'll be 25 DVD's, 20 DVD's, 30 DVD's.

I don't even know how big, it's going to be pretty, we’ll probably break it down into a few courses but I'd love to get it done this year it's just takes an enormous amount of planning, enormous amount of concepts to get in to and I try to make it as in-depth as possible.

That's kind of what's on the agenda. I hope you guys are planning out a couple of things for the summer maybe take a vacation and go take a little time to rest, to break you know and just enjoy life a little bit you know go out spend some time with the family, do some things, you know visit a few new cities, visit a few new countries.

Just make the most of it. I wish you the best have a great week and I'll see you next week.

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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