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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: Charliss who wrote (18269)	11/8/1998 3:23:00 PM
From: Jenna	Read Replies (2) \| Respond to of 120523

FAQ's and answers on trading the "earnings plays"... If there are still any of you out there with more questions please look at the marketgems.com and marketgems.com. I don't want to go through all that again on SI.. I've also added some 'new posts to the education' page. This post should be added to the one on the triple screen that I put into SI.. (i.e. daily charts and weekly charts following for day/swing traders) Earnings Plays are traded just like any stock you would want to trade.. the only difference is that the momentum of the stock is intensified. For stocks that trade in a range or base for months sometimes the earnings report acts as a spring board to finally break a difficult resistance level. Sometimes they bounce off support and begin a brand new trend. You will need 2 kinds of indicators to trade your 'earnings plays' Trend following indicators like (MACD, MACD Histogram, On Balance Volume.. etc..)You will need an indicator like OBV or MFI to check that volume is moving up or even greater than price moves.. You will need Oscillators to let you know when a pivotal point has been reached and when to get in. My favorites are still Stochastic, Rate of Change, Momentum, Relative strength, William %R.. Sometimes you will other general indicators that will help determine really how bullish or bearish the general market is (Put Call Ratio, bullish Consensus, new High-New Low index, the Advance/Decline Line etc.) Trend Following indicators: You will need an indicator like Accumulation/Distribution indicator to track also the days' opens and close as well as volume.. (example: If RMBS opened at 50 went to 55 but closed at 52 the Accumulation distribution is of course bullish, but RMBS is credited with only the difference of "2" from open to the close).. a daily and collected total of all accumulation distribution is what is part of the final "accumulation/distribution" value. Exponential Moving Averages (use 13 or 7 if you are a daytrader, never less) Watching the 21 day and 50 day was fine when the market was still pretty depressed. Lately I watch the 7 and 13 day more.. Watch the slope of the moving average.. and don't trade against the slope. You can buy on moving average crossovers, or when the prices rise above a 13 or 7 day moving average.. You can use MACD and/or MACD histogram, Directional or RSI.. I like the MACD, MACD Histogram with relative strength (about 7 days).. You should use the MA's to define if you stock is in a trading range or trending already. I like earnings plays because you can get stocks in a trending range and they are easier to play. Using your EMA's you can draw trendlines.. You can draw 'trendlines' with the Exponential moving averages by connecting 13 days of lows and 13 days of highs. The final slope will show you if your stock is trending or just in a trading range. All these indicators mentioned will let you know if an uptrend is a place.. That is why they are called' trending indicators... This way you can begin to trade between the support and resistance lines of the trend you have just drawn. So now you have a stock in an upward trend, you have drawn support and resistance lines what is next? Oscillators...So now you have determined you have a positive uptrend you need to decide when to make your trade. You see BKE is rising and it's exponential moving average shows its in a strong uptrend. You can use Williams %R or stochastic.. you have reference lines that can fluctuate from 0 to 100 with a center line.. As prices move from the top of the line to bottom they identify overbought and oversold situations. Stochastic A 5 bar slow stochastics (smoothed over a 3 day period..Stochastics also have reference lines between 0 and 100. but lines are usually drawn at 20 percent and 80 percent to mark your overbougth and oversold situations. I really like the stochastic especially when you are watching 2 screens (which you should be watching).. the weekly chart and the 5-10-15 minute charts. You will need to use a slow as well as a fast stochastic,..%D and %K You won't have to construct them yourself.. Just plug in the parameters and any good software program like Metastock will calculate them for you. You would like to buy when the fast stochastic crosses the slow.. If you stock is already rallying in the weekly stochastic chart, wait for the daily stochastic to go below the lower reference line or at least bounce off the lower reference line before entering. Sometimes it will never go below the reference line because the stock is already in a strong uptrend.. Here is where earnings plays can be profitable even a second time. Once, when the uptrend is beginning to be established and then again when it is already established but the stochastic is now crossing its upper reference line (essentially into overbought territory).. and the fast stochastic is crossing the slow stochastic. Here resistance is pierced and another 'pop' can be had from the stock.. This is what happened with TOM when it 'popped' after being in a strong upward trend for two weeks. the 'pop' will be over before the day is so you should catch it and RETREAT... Remember this 'pop' can come just as easily before earnings as after earnings. Now you can see where the problem can develop.. Your stock is now OVERBOUGHT.. it's announcing earnings tomorrow.. Do you sell take a profit or wait for more. It depends on more than overbought/oversold situations on the weekly and 15 minute charts. How much has the stock gained in the last week or month? Is it over 15% over the breakout line? Is it still essentially beaten down and less than 15% from its 52 week high? So in addition to the strength of the stock in the days/week preceding the report you have to determine the general condition of the stock, (its relative strength for the year or at least 26 weeks).. Stocks with 95 and above relative strength and close or at their 52 week high do not make good bets for holding through earnings. Better bets are those like TOM, CREE or USWB who have undergone a downdraft and are still well below their yearly highs. You have to make this determination yourself.. Sometimes you will be wrong but you will learn what is a 'safe threshold' to sell. Of course other things can come into play like a problem with accuracy of the report, the president resigns suddenly or anything you can't predetermine.. That is why I like to get out with my profit beforehand.