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Tales of a Technician: Post-Earnings Patterns

January 26, 2021

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We’re in the thick of earnings season. Gaps are multiplying, and uncertainty is running hot. Some depart the quarterly event victors with pockets full of cash as evidence of their conquest. Others stumble away like the broken victims of a back alley beat-down.

While a looming report all but disqualifies a ticker symbol for short-term trades, there is a silver lining. The gap is often a catalyst bringing momentum and opportunity. In my experience, the gap is a gift that usually keeps on giving. The days and weeks following an earnings reaction see beautiful breakouts and retracements form. With the wind of earnings at their back, these setups are usually worth pursuing.

The game is simple. If you’re a bull (and I daresay the market demands as much), look for companies that jump higher on earnings. Stalk them for a week or two to see if a post-gap pullback gives you a chance to buy the dip. A sideways consolidation or base could also develop, which creates a breakout trade.

Let’s look at an example.

Netflix

$NFLX chart

Netflix stock soared following this quarter’s earnings report. The gains were so great that they single-handedly resurrected the tech sector. But with NFLX up some 16% in a single bound, it was hard to build new swing or position trades during the gap session.

But if you followed my playbook above, then you would have been watching price over the past week to see if a tradeable setup developed. And lucky for you – one did.

The past three sessions have seen a bull retracement carry prices back to the prior resistance zone. Unsurprisingly, this is where buyers finally made a stand, thus turning an old ceiling into a new floor.

Now, there’s a chance Tuesday’s bounce attempt fails. Perhaps we see a deeper retracement develop. Time will tell. Regardless, this is the exact type of post-earnings pattern that I like to pursue.


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One Reply to “Tales of a Technician: Post-Earnings Patterns”

  1. JimGuanzon says:

    I’d love to see NFLX breathe life into AMZN AAPL FB and GOOG and see 15% pops! 😀

    Thanks Tyler for all you do!
    .jimbo.

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