Earnings Report Trading
By: Jea Yu
The following is an excerpt from Jea Yu's Trading Full Circle
Nothing affects a stock price more than its quarterly earnings report. These are pre-planned events. Fortunes can be made and lost in minutes trading these moves.
Recording Galvanized Price Levels
Preparation is the key here. This takes no more than a few minutes. Analyze the daily, weekly and monthly charts and note the following levels:
- Daily 50- and 200-period moving averages
- Weekly 5-, 15-, 50-, and 200-period moving averages
- Weekly upper and lower Bollinger bands
- Monthly 5-, 15-, 50-, and 200-period moving averages
- Monthly upper and lower Bollinger bands
Make specific notes on any of the above levels that overlap within a 0.20 range. The wider the time frame, the more significant the price level. If any price level overlaps 3 or more times (including the sticky 2.50s and sticky 5s), that is a galvanized support or resistance level to which you should pay extra attention. These galvanized levels are where you want to pay the closest attention.
If there is a mini pup or mini inverse pup on the weekly or monthly charts, specifically note the 5-period moving averages for that time frame, as that will be the line in the sand to preserve the mini pup.
From the above, you should have a top down list of price levels with special markings on the galvanized price levels. Your focus will be on this price list after earnings are released. The initial reactions will have a pinball effect off the significant price levels.
Here’s an example:
Stock ABC closed at 28.95 going into its earnings report. Notes would look like this:
- No trend in daily or weekly, monthly has a mini pup in place
- 32.60 = Monthly upper Bollinger bands and sticky 2.50s
- 31.80 = Weekly upper Bollinger bands
- 30.60*** = Monthly 50-period moving average, weekly upper Bollinger bands, daily 200-period moving average, and sticky 5s
- 29.50 = Weekly 5- and 15-period moving averages, and sticky 5s
- 27.50 = Sticky 2.50s and daily lower Bollinger bands
- 26.85** = Monthly 5
- 25.50*** = Monthly 15-period moving average, weekly lower Bollinger bands, and sticky 5s
- 23.50 = Monthly lower Bollinger bands
*** Indicates galvanized price level overlapping 3 or more times
** Indicates a mini pup support level
From this example, we now have a list of significant price levels to watch, and most important, galvanized areas. The galvanized areas will be the best spots to play knee jerk reactions, either from initial fades or trend re-entries. Use the plus or minus 0.20 trigger at these levels. This is for the more experienced traders if they choose to play immediately off the knee jerk reaction upon an initial earnings release.