Post-earnings plays: Your ticket to profits «

    Post-earnings plays: Your ticket to profits

    Believe it or not, some trades are better than others and, in fact, some of the higher-probability trades you can make come after earnings are reported. Post-earnings trade setups are predicated on the notion that once the news is out, there is a lot less gamble involved. Sure there is less bang for the buck, but if there is still some bang left, and if you rotate your money through multiple post-earnings trades as they set up, then you can effective get a lot of bang for that same buck and do so with significantly less risk.

    Over the next few weeks I’ll pen an article or two each week to highlight some of these trade setups with higher-probability characteristics. I would be interested in your feedback, so take a few moments to comment down below or jot me an email (email address to your left). As always, your comments factor heavily into my writing decisions and are welcome.

    With the first full week of earnings now under our belts, let’s scour the landscape and see what setups are available based on this week’s announcements. Most of the earnings the first week of the unofficial kickoff to the season are larger-capitalization financial stocks which tend to have stronger earnings. For the most part, that was true again, but remember, it’s not what is reported, but how the buyers and sellers react to it. It’s all about supply and demand, and if you look close enough and with a little guidance, you can find it on the charts.

    On Jan. 14, Wells Fargo /quotes/zigman/239557/delayed/quotes/nls/wfc WFC 0.00% and J.P. Morgan /quotes/zigman/272085/delayed/quotes/nls/jpm JPM -0.09% reported, and the reaction the day of the earnings was lukewarm for both. Both of these saw follow through on the two subsequent days however.

    Enlarge Image WFC tested into a huge demand zone, as denoted by wide price spread heavy volume bars. It’s that green anchored support zone that the TA Today charts have highlighted automatically to tell you where demand should show up. Although volume was heavy on earnings, that demand zone was just as powerful, and the buyers routed the sellers both on earnings day and thereafter.

    There is a high probability that a retrace into the overlapping highs/lows from the Jan.14 and 15 bars will get bought now. Again, the charts point that out automatically for you (the highest green zone on the chart). If you are willing to scale in, then subsequent buys could be made at the lower levels with stops under the earnings-bar low.

    Enlarge Image JPM is a slightly different setup, although the same general principles apply. In this chart, volume was heavier on earnings day, yet that bar couldn’t even get low enough to test the lows of the prior day. Although not pointed out on the chart markup, this was actually a retest-and-regenerate sequence that succeeded (is regenerating higher), and though Thursday, JPM failed to get and stay above the highs, it appears it will take another run at those highs soon and most likely get over them as part of this larger move.

    On the negative side of the equation, Bed Bath & Beyond /quotes/zigman/68991/delayed/quotes/nls/bbby BBBY +0.55% was hammered on its earnings, as have other retailers on warnings and same-store sales of late. This is not the first time BBBY has disappointed, but as we can see from this weekly chart, that didn’t keep the buyers from coming right back and plopping their money down again and again.

    Enlarge Image At this juncture, there are two potential trade setups that may occur — a long and a short-selling opportunity. The buy setup occurs if BBBY continues down to anchored support, as demarcated by the large green demand zone. In this scenario, the higher-probability trade occurs if no real bounce takes place and price just continues to depreciate until that demand zone is hit and by the time it gets there volume dries up. This particular trade setup is just a trade , though, and more accurately can be called a bounce trade, but given the above conditions, has a high probability of success.

    The higher-probability trade is the short setup that will occur on the first bounce back to the $68-$72 price range. Almost anyone who bought BBBY since May of 2013 is in a losing position at that price zone now, and thus will necessarily create a huge supply zone in which price will unlikely be able to push back above any time soon.

    One last chart is that of Charles Schwab /quotes/zigman/240465/delayed/quotes/nls/schw SCHW -.00% , which just reported earnings and broke out over a swing-point high. A retrace back toward that breakout bar is the buy with stops under the bottom of the swing-point high bar. A very high-probability trade here as well.

    Enlarge Image Next week we will look at some more stocks that reported Thursday and Friday to see what those opportunities look like. There is gold in them there hills, you just need to know where to stick your shovel