There aren’t many worse feelings than holding a stock through a precipitous fall.
You spend eons replaying moments in your head, wishing you took a different course of action.
Well, I’m here today to issue a warning.
In doing my daily deep dive into the market to pinpoint the value and understand the overall movement, something set off my alarms.
And I can’t ignore the reality – even though it seems like everyone else is doing just that.
I’m not an emotional trader. As a quantitative analyst, I rely on technical indicators like moving averages, relative strength, Bollinger Bands, and others.
That said, there are still a ton of emotional traders out there on a daily basis.
I need look no further for proof of that fact than this list of nine stocks…
So, all nine of these stocks are preparing to announce earnings before the week is up.
That’s the first thing they have in common.
The second thing they have in common is what’s had me scratching my head. All of these stocks have more than doubled the overall market’s current run – despite there being nothing of tangible value to warrant it.
This is a classic example of people “buying the rumor,” as they are getting all hot and bothered waiting for the forthcoming earnings report.
It’s absolute hogwash.
A deeper dive into these companies tells savvy traders everything they need to know to see through this very shaky rally.
Take Seagate Technology Holdings, Inc. (STX), for example.
As you can see, this stock broke its top Bollinger Band yesterday and is now actively trading above it.
It has an RSI well above 70 – a hallmark indicator of it being overbought. On top of that, the bottom right of that chart shows its volume dropping off of a cliff.
Set to announce earnings tomorrow, this is a stock ready to fall.
If that earnings report comes in negative, Woah buddy, hold onto your hats – we could just be preparing for a steep drop on that rollercoaster.
STX is a good example of what I’m seeing with practically all nine of those above stocks.
All of that selling pressure is enough to tell me that I don’t want to be holding any of them entering their earnings announcements.
That bounce off nothing more than rumors and hopes is setting them up for a turbulent ride.
And these are some prominent names too. I’d be willing to bet you’ve got shares of them in your portfolio right this second.
If you are holding shares in these companies, get rid of them now. If you wait for their earnings, it could already be too late. Even better, if you act now, you can profit from the fall.
There are a couple of ways to do this, depending on how risk-averse you are.
Of course, the first thing we’re going to do is watch these names and their earnings very closely. These are houses of cards, and a bad quarter could be all the wind we need to see them topple.
That’s not to say these are terrible companies; plenty are well worth owning in the long run, and there will be opportunities to realize gains here further down the line.
For more aggressive traders, you could take it one step further and buy some puts on these tickers in advance of their earnings.
I’m reasonably sure there will be some that plummet – so that could pay off handsomely if you’ve got the mettle.
Be sure to watch your inboxes as we move along in the week. I suspect this won’t be the last you hear of these tickers.
January 24 2023