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As an individual trader, the discipline it takes to be nimble is by far your most powerful weapon. Take my previous $LULU short position, for example. I wrote several blog posts over the past few weeks detailing how bearish I believed the chart to be. There had been a significant breakdown from multi-month support on heavy volume, and I entered my short just as the stock was retracting on light volume up to the primary breakdown point.
Despite the enticing setup, the stock had no interest in selling off further in front of its earnings this morning. Therefore, the Yoga apparel maker drifted up slowly the past few days. I made the decision to cover my position yesterday, as I did not want to gamble on earnings. Today, $LULU is up nearly 13% on heavy volume after a terrific earnings report. Not only has the breakdown point been recaptured, but so have all major moving averages! Would I short $LULU now? I suppose for a very short term scalp it could work, but I was looking for more a swing setup.
The lesson is this: Technical analysis works very well for everything that is presently known and knowable to the market. However, no chartist is omniscient. Do not fall into that trap. As an individual trader, you are trying to minimize as many external variables as you can. Earnings reports are classic examples of information that is not yet known or (legally) knowable to the market in advance. Thus, with respect to trading, as often as possible you should be looking to reduce your trade size on a given issue in front of earnings and/or big announcements. Unlike big mutual funds, you have the ability to be nimble in situations like that. Use it to your advantage.
Yeah I have found that trading earnings is like Russian Roulette. Ala SD.
Fantastico! Bravo, good sir.
Well played.
I would go farther and say you should NEVER hold trades into earnings.
You can always buy back after.
Nice move and the explanation is appreciated, ChessNWine. I like to gamble from time to time on earnings, sometimes even with options… go big win big, especially with the bigger stocks like $GOOG and $INTC.
With $LULU, one of the members of my stock prediction community site (prooftrader.com) turned me on to the brand, which I had never heard of before, and I agreed with his long coverage of +43% over the next year. He covered it long more than a week ago, and I agreed because the momentum of the yoga craze is becoming very palpable. Very much to your point about technical trading, always remember that we’re *speculating* on the information we have now. And the information I have now is that yoga is very hot and not showing any signs of slowing. Combine that with a premium product/pricing business model, and I think Ian might get his 43%. The article is featured on the front page of the site right now if you care to visit and join the discussion.
Yeah your bearish technical position made me look at shorting a pop, but after investigating the company I expected a great earnings report and bought 2 calls before earnings. Not much but they are doing well right now. I agree with Mike B…
Technical trading is helpful in identifying good opportunities (risk/reward) in good companies.