How do you make money when a company reports stellar earnings? Here are some tactics for Micron (MU), Oracle (ORCL) and Adobe (ADBE). (March 24, 2017)
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Lets talk about when to sell. We are going to look at Oracle ( NYSE:ORCL ) and Micron ( NASDAQ:MU ), two companies that give us really, really monster numbers. The thing is, when this company, Oracle ( NYSE:ORCL ), reported, the stock ultimately opened up almost 8 percent higher than it closed the prior day. If you are long this stock you need to be selling into this. It is obvious, we can see it here.
You could say, “Well, it is easy to point that stuff out Dan.” Of course it is. The problem is that people don’t get it. If they did the stock wouldn’t open up this high; because for every share sold some fool is buying that stock. Buying it up 7 percent after they report earnings. This is what you have got to realize: Short interest basically nonexistent, nobody is going to short Larry Ellison, I wouldn’t. The stock gaps way up, above this upper Bollinger Band. You sell into this. You sell the shares that you have. Or, if you are so inclined, short the snot out of this thing because it will pull back. It is a buying climax. The stock has moved from $38.00, around 15 percent, something like that. From the low a little pullback, so this is kind of a rocket ship just waiting to take off. But when the earnings are reported the stock has this huge jump. Now it has pulled back.
So what are you going to do? What you are going to do here is wait. You are not going to do squat! Because, this stock is SO extended. Look at the 50-day moving average. It had been just kind of basically meandering along for the last year or so. And now, with this uptrend that started here, it is dragging this thing higher. Well the stock is so much higher than that. Basically the average cost basis of all but the quick and the dead is a lot lower than where the stock is right now, which is why this stock is pulling back.
Compare this to Micron ( NASDAQ:MU ), another company that reported REALLY strong earnings, awesome earnings. What does the stock do? It gaps up over 12 percent. Where is the high of the day? Lets go, in the first 5-minutes, I am sure if I even went down to a 1-minute chart, what will we see? This is what we will see: Literally the first minute of trading was when the stock it the high. So here is what you have to think about with stuff like this: By buying first thing in the morning you are not getting in on it before everybody else gets a chance to. That is why they have the opening bell as opposed to a soft open. You are buying right when the most demand for that stock peaks. And what happens when professionals see that there is a huge amount of demand for the stock? They will sell you all that you want but they are just going to mark it up.
Look at Adobe ( NASDAQ:ADBE ). I hadn’t planned on looking at it but then here we are. Same kind of thing. This stock had closed there. It opened up about 5 percent. Not a huge thing but it was already extended above the 50-day moving average. Here was a volatility squeeze right at the 50-day moving average, no earnings associated with this, but the stock broke out and continued to trend higher. So here, what do you think traders are doing? They are anticipating strong earnings. So when the stock finally DOES open up look how high above this 50-day moving average it is. It generally doesn’t get that high. A nice run here, but this breakout here is not that.
So what are you going to do? “Oh! Well this is all the stock pulled back Dan. It almost filled the gap and now it is moving higher from here.” I would be really suspicious of that. Because yes, I see that, this is a strong stock. You look at the weekly chart, it is about as strong as death, it is a total bear killer. BUT, with the stock peaking out like this, this is the top here, it is not something that I want to buy. I want to drag this chart over, find the high here, and then just start stretching a box along, the 50-day moving average. I look to buy it in a few weeks once the stock pulls back or even just drift sideways long enough for the 50-day moving average to catch up to it.
That is how you trade these gaps. You sell into them and then wait for the stock to settle in. You like the stocks of companies with really, really strong earnings. If you were not in them then you wait. You don’t jump in right away, because everyone that was in them is jumping out. Don’t take them out of their trade. If you want to be philanthropic, donate to a charity not your fellow traders. Wait for these strong stocks to pullback for the best entry. Let somebody else buy those gaps while you either short into to them or stand aside.
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