I have a fascination with traffic cops.
They keep track of which cars to hold up and which ones to let move forward. They watch pedestrians crossing the street.
They blow whistles. They often entertain, moving their arms and legs like dancers.
Anything that distracts them from doing their job can result in all-around havoc.
They put themselves in harm’s way.
Each day, the market has its own traffic flow.
Just as some intersections get crazy around rush hour, certain times in the market require more vigilance.
Earnings season is one of those crazier times.
Traders have to keep track of which instruments to trade and which ones to avoid.
Traders have to watch order traffic flow.
Traders may blow a whistle on a stock or hear analysts blow them.
I’m certain that all traders have at one time or another, gotten up from their chair and either kicked it or did a happy dance behind it.
If distracted, trader’s P&L’s could suffer.
How then, can traders avoid havoc during earnings season?
Although one must always trade with a plan (or traffic with a plan) earnings season requires additional decision making.
This earnings season, certain beat up stocks have reported above expectations and gapped much higher. Some momentum stocks have reported worse than expected and gapped much lower.
How can one traffic that type of order flow?
If interested in trying your hand at value investing ahead of earnings, let’s examine Twitter.
Twitter (TWTR) gapped higher after earnings. Ahead of the report, TWTR had held the 2016 low.
When there is a historical low to place a sell stop under, that gives you room to buy a sane position size even well ahead of earnings.
Twitter has had issues monetizing, but is the go-to place for pretty much everyone to communicate (think Trump).
If you were long, you were rewarded. Nonetheless, if Twitter holds its earnings gap and you prefer the safer route-no position into earnings, then you have a whole new trade setup.
