Back in December we successfully identified and swing traded the bottoming formation in gold miners, followed by energy/oil/gas in early January. Often when one or two sectors show this formation, other related sectors will follow.
Steel is showing signs that it is the next bottoming formation candidate. This sector does not have an ETF to trade, so we look to leading stocks like X.
Notice the trend line break. The big gap up 5 days ago was an earnings breakout, which gives the stock the catalyst it needs to start a new trend. Positive volume is pouring in, which is exactly what we want to see.
As we saw with gold miners and energy, these types of bottom formations take time to develop and are volatile. You must be patient with entry as there will likely be a pullback and test of the lows.
If you would like to learn more about how I trade, receive my nightly focus list with market analysis,setups and trade alerts, sign up for a 14 day free trial at BullsonWallStreet.com.
Netflix broke out yesterday on strong earnings. This is a breakout-pullback candidate. Strong volume on the breakout over a bullish flag pattern. I am now waiting for a low volume orderly pullback.
BOBE broke out today over long term resistance levels in a reaction to a postivie earnings announcement today. It is also worth noting that this stock has a high short interest ratio.
I bought CYBS four days ago, after the stock had pulled back from the breakout point and stochastics crossed over from oversold territory.
Since I did not post it here I won't include it in my performance stats, assuming I ever get around to updating them (you can click on the trade label after trade related posts to view trades I have made).
The reason I did not post that trade is, as I discussed before, I've noticed that some of you are piggybacking my trades (some with much bigger position sizes than me). Since this stock usually trades at a lower volume level, I didn't feel comfortable posting the trade. I do now since it's not at an ideal entry point.
Note the upsurge in positive volume of late, along with the a fantastic breakout-pullback pattern.
Setup: Earnings-Breakout-Pullback. This specialty retailer broke out on massive volume two days ago as a result of strong earnings. I bought today on the pullback, about a point away from the bottom of the breakout candle.
Risk: I plan to hold this stock into new highs, possibly taking partial profits in the $24-25 range. My stop is just under the breakout bar.
Concerns: Stochastic is over 70, but this isn't unusual when playing earnings breakouts.
GTLS is an earnings breakout play that has shown accumultion as it consolidates the breakout move. A key day was early last weak when it confirmed the hammer the stock printed at the breakout point. The RSI and OBV trends are positive and the volume pattern has favored up days.
My target is the recent high of $38, while my stop is just under the breakout point, around $31. This gives me a nice 2.5:1 reward to risk ratio.
I am using the well known gold ETF GLD to detail why I entered DZZ, which is a leveraged inverse short ETF. I am using this chart because it gives a good example of how I like to play "fallen momo stocks". Note that Gold is showing many of the elements that DBA and other ag stocks showed as they broke down.
Why use an inverse ETF rather than short GLD or other gold stocks? The short ansser is I don't have to borrow shares, thus I don't incur any interest charges.
I entered GTLS today, 400 shares at an average price of $34.22. This is one of my favorite setups, the earnings breakout-pullback. Take a look at the awesome volume pattern. My stop is just below the breakout bar, with an initial target at $38.
I wish I had time to highlight the rest of my trades today. I have plans to make one brave, speculative and possibly foolish trade tomorrow that is based on instinct rather than one of my usual setups. More to come . . .
I bought 200 shares of SSO at $65.84. For those that didn't read last night's post, this trade is based on the oversold stochastic strategy. Not sure if I am in too early, as the read line is still above 20. However, the black line, which I focus on, is at 14. I used SSO instead of SPY for the added volatility, as it is 2 times long the S&P 500.
What a freakin' relief. MON posted monster earnings this morning, and the future of this ag company looks bright. I bought 400 shares yesterday at $110.22 and the stock is currently trading above $119. I sold half my position at $119.10 for a $1776 gain (+8.0%). I am going to let the remaining 200 shares "ride", and may even purchase more on a pullback to the $115 breakout point.
While I am happy about how this trade worked out, it still goes into my journal as a mistake. Gaming earnings is just too risky of an endeavour. We are talking high risk, high reward, and I prefer low risk, medium to moderately high reward.
As I posted in comments earlier today, I bought 50 shares of BIDU at $370.52. The stock has pulled back close to the 50 day moving average and seems to be acting well. Historically, this is a good place to enter the chinese internet play.
Well my friends, it didn't take me long to make a boneheaded move, on the very first day trading day of the new year. I went long MON. It looks great. A sector I love, and have made some mad coin playing (agriculture). Nice pullback to support. Nice volume pattern showing accumulation. Entry not too far from the 20 day moving average. The stock ends up only slightly down on a horrible day for the indexes, and up about a dollar from my entry. What's not to love?
I forgot to check the earnings schedule for the stock. Of course, as reader Tom pointed out, MON reports tomorrow morning. WTF??? How could I have missed that? I'm getting sloppy. Inexcusable mistake. As many of you know, I love to play earnings, but only post breakout. I never like to hold a stock going into earnings.
Even if the stock knocks the socks off the street, this will go down in my journal as a bad trade. I had absolutely no edge going into earnings, and set myself up for failure. Words cannot express how mad I am at myself.
I will probably place a stop before the earnings report just under today's low. If I'm feeling a bit more risky, i'll place it under the 20 day moving average.
Last night I created a video highlighting a few of my trades (MA, AAPL, GOOG, NOV). I had problems uploading, so the post is a little late. I have already taken profits in the NOV short.
Yesterday's trades: As noted in yesterday's video, I went into the week with my bear hat on. I don't trust this market. Price action has been horrid of late. It's not just the distribution days, but the nature of the subsequent consolidation. Every attempt at a bounce has been met by quick profit taking.
That's why today's opening strength was so appealing to me, both for profit taking and to initiate shorts. There was no underlying strength by way of volume and breadth, which lead me to believe their would be no upward momentum.
I sold my remaining 300 shares of MA at $187.55 (entry at $181.04) for a $1953 gain (+3.6%).
I exited my TOL short late in the day. On the 14th I went short 200 shares at $22.44 and 300 at $21.46 on the 13th. I covered today at $18.22 for a $1812 gain (+18.1%).
A bounce in the housing sector would likely to again short TOL or other builders. MA is setting up again for a bounce, as it closed around $181.
I bought 600 shares of QID at $40.26. In the video analysis, I stated I would enter in the $38-40 range, but today's open was too good to pass up.
I went short 500 shares of NOV at $69.44. This is a classic reaction back up the breakout bar. The stock closed at $66.91 and my target is in the $63-64 range.
I went short 300 shares of AAPL at $176.08 later in the day. The stock had climbed above $176 early in the day, pulled back and mounted this level in the afternoon. I went short when the bulls failed to hold the high, on the break of the morning high. The small position size reflects the fact that this stock will likely enjoy a big bounce if the market stabilizes.
I exited DCO at 42 (entry at$38.10) for a $1170 gain (+10.1%) . The setup was an earnings breakout-pullback. I will re-enter on a pullback to $40.
I exited 200 shares of NOV at $67.35 (entry at $63.74) for a $722 gain (+5.7%) . This was an oversold bounce play that now looks like a good deat cat bounce short. I may short it later today.
I exited OII at $67.04 (entry at $62.50) for a $908 gain (+7.5%). Same setup as NOV.
I covered my VMW short at $94.46 (short at $89.10) for a 1072 loss (-6.1%). I still like this as a short. Volume on upmove is low. It's just bouncing more than I expected.
I bought 300 shares of AAPL at $185.09, using my earnings setup. Historically, high volume gaps, especially those that are earnings related, have triggered bullish runs in this stock. I would not be surprised to see this earnings gap propel the stock to the $200 level.
I sold 300 shares of JASO at $55.05 (entry at $49.10) for a $1785 gain (+10.8%). My target for this trade was hit this morning.
I sold 200 shares of EDU at $76.62 (entry at $73.10) for a $704 gain (+4.8%). I will buy this stock again if it pulls back to the breakout point.
I am holding ISRG, BHP, SGR and AAPL. I may exit ISRG later today since my target has been hit.
My first post-earnings play of the season is BLUD. Immucor surpassed expectations Thursday and is now consolidating it's big high volume spike. OBV looks good and there's a nice volume pattern forming.
I bought 400 shares at $38.25.
Update: I bought 40 shares of BIDU at $321.23. Pullback is a bit harsh, but I'm guessing it's an overreaction to JP Morgan comments. My stop is at $310, making this a low risk speculative play.
Reliance Steel (RS), reports earnings this week and has a nice looking earnings setup. The stock is basing just under resistance, so a positive earnings report could set the stage for a breakout move to new high territorry. I will likely place a buy stop just above resistance.
NILE is moving after hours based on a well liked earnings report. I've noticed that, this earnings season, stocks have been making some crazy moves after earnings. Not only are they making big gains on earnings, but instead of pullbacks from profit taking, stocks continue to ramp up the next couple of days.BWLD is a good example, and there are a bunch more.
I might take a stab at playing this seasons momentum. Remember, we must always stay flexible and adjust our trading to current conditions. In this case, it means setting aside my bread and butter pullback strategy and riding the earnings momentum wave.
On Tuesday I posted a few earnings breakout plays. A backer of BWLD (Buffalo Wild Wings) gave me some heat for not entering pre-earnings, and asked why I take such a conservative approach to earnings plays. Here is my answer:
While it's great when you catch a BWLD earnings move, it hurts just as bad when you are the victim of an ADM-like breakdown. To combat these two extremes, I prefer to enter on post earnings breakout moves that make there move over resistance. For example, in the case of ADM, I would have entered on a breakout over $39.75. The stock would have entered intermediate new highs with a ton of nearby support.
Each and every day during earnings season, I take a look at the following day's earnings schedule and pick out stocks that are basing near support or resistance levels. A move above this level is likely to yield positive results, as prior support should become resistance.
If you miss the breakout move, earnings breakouts can also become good breakout-pullback plays. In the case of BWLD, a pullback in the next few days that holds at the breakout point could provide a good entry, with a stop just under the breakout bar.
GROW: bullish engulfing JSDA: strong at support SIGM: Short on pullback to gap point ADM: $39.75 breakout earnings play BWLD: $67.50 bo earnings play OII: $48.50 bo earnings play UPL: $58 bo earnings play UA: $51 bo earnings play VLO: pb to moving average
