The two sides of earnings

As you know, earnings reports are the quarterly effort companies make to update their health to their stockholders.

They talk about revenue, income, profit (for the companies that have it), and overall plans and projections for the month, quarter, and year ahead!

It's very heard to predict what will happen to a company after it reports earnings, even if the numbers are pretty good.

But two extremes are very much in play, and we saw both in recent days.

Lululemon (LULU) reporting incredibly successful earnings, and saw its shares spike over $50 overnight. Look at this huge gap up:

Sometimes, after great earnings reports, traders just go crazy and the stock explodes.

When this happens, the nxt play for traders who missed out can be difficult.

Sometimes, these stocks will draw down to their pre-earnings price, and give you a new high as a future target.

When that happens, you can look for a bullish entry and consider that post-earnings high as a new target and a level of potential resistance.

But this can be harder in a super bullish market, like what we're experiencing right now. In that case, it's okay to just say "we missed this one," and wait until a real pattern sets up again.

Trading requires a lot of patience!

The opposite end of the post-earnings spectrum is the gap down, which I love to see, because it sets up for a potential great entry.

Look at what happened to Gamestop (GME).

It's almost hard to see because the recovery was so immediate, but GME gapped down about $20 after earnings.

When a stock gaps down after earnings, I usually love it, because we can look for this gap fill trade, and it's very easy to enter and know our profit target.

In the 1K Club, we've found wins like this recently on TWTR and FSLY.

When you see a stock gap down, you wait for a bullish entry, and you can potentially find a great trade as the market moves to that previous level and fills the gap!

In GME's case, the gap filled so quickly, it would have been hard to find that trade in time, unless you were day trading very carefully.

But usually, those gaps don't fikll quite that quickly, and there's time to take action.

We're near the end of earnings season now, but really, it hardly ever ends. The next season begins in late October, which feels like it's right around the corner.

And when that starts, we're gonna have a ton of new opportunities to find these great trades!

Happy trading,

Markay

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