Trade Reviews – $YHOO $CRUS $IBM Guest Post by @MarketPicker 

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Earnings season is now upon us. For traders, this is the time to grow & excel, both from a PnL standpoint as well as on a psychological standpoint. I’m going to share 3 trades I made this week: 1 I crushed, 1 I should’ve taken, which just so happened to be the trade of the week (but didn’t because was in class), and 1 I did pretty well on.

First one up, YHOO. Alright this one was pretty simple. YHOO had earnings & was trading higher pre-market on Wednesday (4/17/13). My plan was to buy near the pre-market support at $23.20 and try to capture a move up to $24. This one followed my plan exactly. The stock did a quick drop out below pre-market support down to $23.13, however, it was quickly bought up. Buyers supported it on the tape above $23.20. So this is what was going through my head so far: the stock did a quick drop out below pm support but buyers pushed it back up to $23.20 and were holding it above. So I got long at $23.21 and put my stop at the wick low at $23.13. I got pretty big here not only because it was where I had planned to buy it but also because the setup offered such a low risk/reward – almost a 10:1! See chart (link) below for my entries & exits. (note: this trade had a lot to do with reading the tape, hence the up move on the 3min chart below doesn’t necessarily give you a buy signal). One last point about this YHOO trade, I got flat once my target had been met ($24). Granted the stock went up a little bit more – 10 cents – but I felt much more comfortable booking my profits and following my plan and then re-evaluate the trade rather than just being greedy.

3min chart intraday chart (no pre-market data) showing my entries & exits:
5min chart with pre-market data showing $23.20 support from the pre-market as well as $24 (target):

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Alright the next one up: CRUS aka the trade of the week. CRUS was gapping down over 10 percent after handing in lower-than expected #s. CRUS had been hammered even before this negative news, trading as high as $45 in September of last year to trading down in the low 20s prior to Wednesday’s gap down. Now with this gap down, it was breaking an important longer-term technical support level at $20. So let’s recap: a broken stock with unexpectedly bad news gapping below an important technical support level. This had all the makings of an “All-in Short Trade.” Zooming in, the stock had bottomed in the after-hours and pre-market at $19. More noticeable, though, was that the stock retested the key $20 level & was immediately rejected, giving you even more conviction that this was going to trend down nicely.

Weekly chart showing break below key $20 level:
5min chart (after-hours & pre-market) showing retest and rejection at key $20 level:

Now as for a target or a general idea of how far the stock could go. The target I had in my head was $17.80-$18. I briefly mentioned on StockTwits that I thought Wednesday’s down move should be contained by $17.80 to the downside:

The way in which I came to this general target zone was this: the stock at an ATR of 0.88 prior tothis gap down, so 2.5X ATR represents 2.2 points; 2.2 points down from $20 gives you $17.80. I also figured $18 would kinda be a natural target, hence my target zone of $17.80-$18.00…the stock made an intraday low of $17.87. As a side note, I’ve written about how I get general target zones based off ATRs prior news catalyst before, namely in NKE when it gapped up to all-time highs (see: Anything But a Slow Friday! – 3/22/13  https://docs.google.com/document/d/1szNJ0r5vQqBGfTN5F79W4BFD43fiSYBgsQ4lKpEnafg/edit

Now let’s get into the intraday action. The stock had a opening drive lower & then proceeded to form was most would view as a bear flag. But what was really going on? After driving lower on the open, the stock started to have an unusual held bid at $19.25, but remember to keep things in context: a broken stock. The upper end of the range was about $19.40. So this is what should’ve been done IMO: Short some at $19.40-$19.45 with your stop at $19.56 (or where you feel appropriate). Once the 25 cent buyer drops, you get shorter. This is one of my favorite setups: a stock that is broken on all timeframes & has an opening drive lower has an intraday held bid where you can build to your short position once that buyer drops. Note, in this particular case, you wouldn’t have been able to hit the bids due to the uptick rule, so you would’ve had been taken on the offer. The stock then proceeded to break the after-hours & pre-market support at $19 = get even shorter. Now at this point, you just hold it until there is a good reason to cover, i.e., break of downtrend, meets target, etc. While it’s my style to scale out along the way in order to book profits and as per my risk management, you definitely should’ve held a core short until target zone of $17.80-$18 aka “sit back & relax.”

3min, intraday chart showing opening range & held bid then break below $19 (partial):
5min, intraday chart (complete) w/ notes:

 

The main thing I wanted to share about this stock was the short setup off the open & the simplicity of really just sitting back and not covering until there was a real Reason2Cover. This was definitely the trade of the week, and it even offered a nice 2nd day short set up at the prior day’s afternoon resistance of $18.50. These TrendTrendTrades are very powerful setups and don’t come along all that often, but with earnings season now in full gear, be prepared to see them more often. .

 

2day, 15min chart showing 2nd day short setup:

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    The last one up: IBM. IBM was gapping down after poor earnings results (notice a pattern here – news catalysts). The stock had a nice opening drive below the after-hours & pre-market support levels. The next support area I saw on the chart was $190-$190.50, so I was going to look for a setup that offered a favorable risk/reward to try to capture this down move. (note: I’m not as comfortable with these high price stocks, so I wanted to wait for a clean setup). The stock made an intraday low at $191.04 around 10:50am, and it then re-tested & held below the bottom of its opening range that it had broken at $193; this was my short entry. I was looking for new lows and then ultimately $190-$190.50. I covered small into the prior intraday low & then got flat at $190.56. Looking back on the trade, I should’ve held some until $190 (which was the lower end of my target) once it broke its intraday downtrend – the “real” Reason2Cover. Overall I was happy with my trade, but I clearly could’ve held a bit longer instead of just getting flat at $190.50.

15min chart showing pre/post-market levels:
5min, intraday chart showing downtrend:
5min, intraday chart with entires, exits, & notes:

 

With a slew of earnings this upcoming week, you have to be mentally prepared & focused for some excellent opportunities. This time only comes 4X a year, so don’t let it go to waste! I continue to learn & grow as a trader, especially during earnings season. Make the most out of earnings season!

 

If you have any questions or comments, please just let me know.

(@MarketPicker on StockTwits)

Guest Post: Trade Reviews – $YHOO $CRUS $IBM