Earnings Action
Friday gave us record high closes in the Dow, S&P 500 and NASDAQ. Volume was light, with only 14,318 institutional blocks, and breadth was positive. The techs and energies led the week, with the NASDAQ up 3.2% and the X0I up 2.1%.
In addition to each over-analyzed and over-reported economic number, earnings season is upon us again. It’s good to follow the price action stocks before and after their earnings announcements. There are very few real surprises on Wall Street; some institutions are always on “page one”–all information is not created equal.
For example, consider Harley-Davidson (HDI), which reports today. We got entry at 57 on a setup pattern four days ago after the stock had re-crossed and closed above its 50-day exponential moving average (EMA), having broken out of a 17-day consolidation just under the 50-day EMA, but with a rising 200-day EMA. The stock has traded to a high of 62 7/16, or +9.5% in the four days since the entry at 57, and closed Friday at 61 3/4. Market movement or earnings expectations? Probably both. The consensus estimate is 43 cents vs. 36 cents, and the “whisper number”–whatever that means–is 46 cents. The second quarter is usually HDI’s best growth quarter.
The key point here is if earnings are going to be a “surprise,” you will see it 99% of the time before the announcement and on increased volume as the institutions on page one and the wired hedge funds who got the early call load up. In this case, HDI had corrected from 64 down to 50 1/2, then advanced around 10% to a consolidation between 56 1/2 and 53, just under the 50-day EMA. This was a perfect spot for institutions to add to positions, especially if earnings were going to be in-line with, or better than, expectations. The stock’s price movement and volume told you to enter. We want to trade with the generals, not against them.
Around 8:30 AM ET, the futures are up 1.60, bonds are opening up a touch off. They couldn’t take the tape down three days after the gap up, and if they can’t take it down, there’s only one way to go. Looks like we could get another shot up here.
Target Stocks Of The Day Â
| Program Trading Numbers | ||
| Buy | Sell | Fair Value |
| 12.35 | 8.45 | 10.40 |
Editor’s note: If you want to learn more about Kevin Haggerty’s trading strategies, click on the link below to go to his new series of tutorial articles.