A Daytrading Example Based On Earnings News

We are in the middle of
earnings season.
Major brokerage analysts are busy every day
upgrading and downgrading stocks based on the earnings reports. That means we
are flooded with plenty of extra daytrading opportunities. This morning before
the open, Robertson Stephens upgraded Netegrity (NETE)
from buy to strong buy after the company reported better-than-expected second-quarter
results. The chart below is a daily chart of Netegrity as of the close of
yesterday (7/25/01).

The stock is in a clear downtrend,
as illustrated by the declining trendline and the 20-day moving average.
Normally, the upgrade news creates gaps, so I will be looking for a breakout or
a breakout failure. Let’s see the five-minute chart below from today’s session. 

The upper red line indicates the
level of the 20-day moving average, and the lower line shows the level of
yesterday’s high. As expected, Netegrity gapped on the open and immediately
traded above its 20-day moving average. But as you can see, it was a breakout
failure. Around 9:40 a.m., we had our first short-selling opportunity, and the
second one came around 10:35 a.m. when the stock broke down below a bearish
flag.

This is not the end of the story. Later in the afternoon, as the market began to
stage a rally, Netegrity successfully broke out above the 20-day moving average.
As you can see below, we had two buy entry points.

Remember, always use stops on every
trade.

Eddie

P.S. QCOM will be reporting its earnings this afternoon after the close.