How To Navigate Earnings and Irrational Behavior
Dear Trader,
Last week it was all about the QQQ as the technology-heavy ETF saw almost half of its weight report their quarterly results. That’s what put a fire under the market’s ass. This week, things spread out a little more as we get a “cross-section” of the market’s reports.
Here are your top three ETFs for earnings activity this week as well as how they have been trading into the reporting.
Do you think emotion has a place in the markets?
Emotion: A Traders Plague.
If you caught the show this morning you saw me talk about how so many charts are mimicking the trade on MSFT. Stocks are running up left and right it’s like we are kids in a candy store.
Remember how much joy you got from the candy store as a kid, youd hope you never had to leave. All the bright colors, tasty treats, and endless moments of happiness?
That is where we are at in the market right now.
FOMO is a real thing in the markets right now if a stock starts to make a run people hop on board in hopes that they can relive the memory of a better time. For the less informed passengers on the FOMO train they think they are making new memories and they are getting on in the floor of the market.
It has carried the markets higher all through 2020 and 2021 and even now. Actually you can turn on any of the big media outlets and find somebody planting their flag saying ‘that’s it, the bull market is on again.’ As a collective group here at Money Morning Live we know that is just not the case.
Now, do I want MSFT to keep going higher as well as the rest of the market? Of course I do… and it will…. Eventually.
For now we have to realize the dangerous moves we are seeing right now if we plan on being in the market for more than a day. Sure you can trade like Kenny and make money but that’s not my style and if I had to make a guess, it’s not yours ether (the day trading that is, making money is always in style)
How Do You Handle Irrational Behavior?
Right now we are seeing unheard of stocks shoot up and I’m going to be honest here, I don’t know what half of them do. This strikes me as a widespread moment of irrational behavior in the market.
Two weeks ago, we saw over 1200 companies shoot past their top Bollinger Band and since then, more and more companies have joined the group. This isnt just something that happened it’s a market phenomenon that shouldn’t happen.
This is driven by those who are jumping into the market thinking we are just able to get things at Labor Day discounts. In reality we are moving towards another leg down.
You see we are a bit more educated group who is more in tune with the markets reality. The beautiful thing about being in the know of what is to come in the future of this market is, you get to spend the time getting prepared for what is to come next.
That is what ive been doing with my MSFT trade. That trade was rolled a while back and as the price increases ive added to it. I do this because I know what is going to come next, the higher it goes I can add to the position for less and less, positioning the trade to make me a substantial profit once the stock inevitably gets knocked out of orbit and comes back to reality.
Something to remember about this is my risk tolerance may be different from yours. I’m not instructing you to follow my steps on this trade although in chat it seems some of you might have done so. This is why my phrase bend don’t break is so important. If you know what the markets next move is youll be able to assess your own risk tolerance and adjust your own trades accordingly.
Don’t get me wrong I love just telling you what to trade but I want nothing more than to know that I have taught you how to do this on your own. Once you have learned that you can still come hang out with me, have a good time and get additional trades but understanding what letting the markets come to you will do for you trades will be worth my weight in gold.
That is actually what has brought success to so many of my Night Traders. If you havent had the chance to take a look at it tomorrows your chance, I’m opening up the room at 3:15 for all to join for an energy update and a full 45 session for Night Trader so every last one of you better be there and don’t forget to bring your charts!
Top Stocks Under $10
Let’s wrap today up with something that’s a bit more fun than trying to figure out what the crazies driving the market higher on hope are thinking.
Before we get into my list remember volatility is a trader’s best friend. These stocks don’t move much in a numerical sense but when you look at % swings it gets quite interesting thanks to the speculators in the market.
- NKLA
I love when this stock makes the top of my list! When it does it tells you to be prepared for it to fall. For some reason this is Americas favorite stock to ramp way up then dump it with zero discretion.
This stock rallied the exact same way it is now back in June the only difference is there was a bit of a cross turning the trend positive now it’s a waiting game as they announce earnings before market open on Thursday and I don’t like trading companies right before earnings.
- REV
Ah yes, a company that hits my top stocks quite regularly. But you know my rule on REV and if you don’t, Its Kenny’s ticker to trade. This tickers movement isnt quite conducive to my style. Sure, I could throw a $10 call on it, but just as easily as it could blast the $10 mark, it could drop to $2.
- MULN
This is one of those EV companies that just dosent want to go away.
23% of the open interest was on the call side yesterday so in other words, a lot of people are coming in a buying the stock. It trades around $0.86 you can look for it to hit $1 and after that the resistance is going to bully this stock right back down the pole landing around $0.50.
- OPEN
This company is a clear example of why I love stocks under $10. The round number of $10 creates quite the barrier for a stock and OPEN has ran up and kissed that mark several times only to be pushed back down lower and lower.
This is just a touch of what imp looking at today, just a reminder tomorrow I’ll be on in the morning and everybody can join me in the afternoon as well!
Talk Soon,
Chris Johnson
Quantitative Specialist, Penny Hawk
Comments
August 02 2022
