What Happens When You Use Corporate Earnings to Pick Trades
Published: Wed, 07/18/18
Trader Case Study: What Happens When You Use Corporate Earnings to Pick Trades
See which data set helped traders stay in front of REGN’s late 2017-early 2018 crash
By Elliott Wave International
According to a June 26 Fortune Magazine article, New York-based bio tech company Regeneron Pharmaceuticals is one of the "100 Best Places for Millennials to Work" in the world. Shares one of Regeneron's employees:"The thing I love about working at Regeneron is that when they say data is king, they mean it. Our work and projects are always changing based on what the data shows us."
We hear the same expression bandied about Wall Street; data is king to determining a market's price trend, with the long-reigning monarch of that data being earnings reports.
All hail earnings reports? Not so fast!
Our very own senior analyst and long-reigning Trader's Classroom instructor Jeffrey Kennedy admits to the "seductive nature" of earnings data, tempting investors into a false sense of confidence regarding future price action. But there's a danger in such logic, as Jeffrey explains:
"My own experience trading earnings reports has been hit or miss. At the very least, it's been frustrating because there have been times when the earnings report will be positive, and the stock price will decline -- or vice a versa."
Get immediate access to Jeffrey Kennedy's free 20-minute video, "4 Keys to Crafting Rock-Solid Trades." In this video, Jeffrey reveals his time-proven tricks to ID top trade set-ups in the markets you follow. Learn more now.
You've seen this happen too, I'm sure. So, why does it happen?
Because it's not the hard data inside the earnings report that drives prices. It's how the market participants interpret that data. And their interpretation depends on the current trend in market psychology. But hold on, let's let Jeffrey explain more.
Over the course of his career as a technical market analyst and trading instructor, Jeffrey has relied on another form of data to determine the most "watch-worthy" issues: Elliott wave analysis. For Jeffrey, there are three main requirements for a high-confidence trade set-up:
- A Clear Trend: Jeffrey explains: "The first thing I want to identify on a market's price chart is the trend." Higher highs and higher lows indicate an uptrend, whereas lower highs and lower lows suggest a downtrend at play.
- A Recognizable Wave Pattern: Jeffrey is emphatic: "If you can't count [the Elliott wave subdivisions inside a price move], don't trade it." He sticks to the five core Elliott wave patterns: impulse wave, ending diagonal, zigzag, flat, and triangle.
- A Clue to Price Personality: Slow and choppy price action contained within parallel lines indicates countertrend action -- i.e., a correction. Conversely, when prices move far and fast, and especially if you see a price gap on the chart, this indicates the so-called impulse waves -- i.e., the direction of the larger trend.
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