This week has been all about earnings and while a few stocks have made big moves after releasing their quarterly numbers, the indexes have “taken a breather” by consolidating nicely at their daily 8 Exponential Moving Average (EMA).
We like the idea of lower time frame squeezes (such as 1-hour and 4-hour) firing long off the 8 EMA to trigger the next move higher, but anytime heavily-weighted stocks such as the Facebook, Amazon, Apple, Netflix and Alphabet (FAANG) announce earnings, there can always be implications (good or bad) for the overall market. With this being said, we advise being patient over the next few days and letting things unfold before jumping on any moves.
Currently, NVDA, EPXE, and a few other solid squeezes are catching our attention, but they’ll need the overall market to continue its grind higher in order to be A+ opportunities (remember, our best trades will come when we have the “wind at our backs” with the indexes remaining strong).
GOOGL announced quarterly earnings this past Tuesday, and the numbers were met with a positive reaction as the stock opened up over $100 higher yesterday, before slightly fading into the close. You can’t ask for better results than GOOGL delivered, however the structure of the chart doesn’t make it the easiest to trade moving forward. It is well above 2+ Average True Range (ATR) on the daily chart, making an entry at these levels less than ideal. Remember, if QQQ can fire its weekly squeeze long, we should see almost all tech-related stocks grind higher. However, we still want to focus on the best structures and highest-probability entries we can get, and GOOGL just doesn’t offer that here at this extension.
On the other end, MSFT earnings weren’t met with as positive of a reaction as GOOGL. We saw the stock gap down by over $5 at the start of the session. On a positive note, the gap down did bring the stock back to its 21 EMA buy zone on the daily chart, and this is something we can work with. An entry at the buy-zone allows for “easier” upside should the Qs (QQQ) begin to heat-up again. We preach (and make a living) getting long at the buy zones and taking profits into 2+ ATR extensions. This is what makes MSFT a much more attractive entry than GOOGL at this point.
While GOOGL and MSFT kicked off earnings for Big-Tech, it was FB and AAPL who stepped to the batter’s box yesterday evening. Here’s how they’re behaving in the after-hours at the time of this writing:
- FB is up over $20+ after earnings, surpassing the $12 expected move
- AAPL is currently up $4+ in the after-hours, which was just about the expected move.
The initial reactions from both of these names bodes well for tech heading into today’s session.
AMZN announced earnings today (Thursday) after the close, and the results could certainly have an impact on tech along with the overall market. Should AMZN pull a move to the upside like GOOGL did, that could be all the QQQ needs to begin firing the weekly squeeze long. At the same time, should AMZN bomb earnings and sell off, that could “rain on our parade.”
We are still holding our 5/21 expiration 3,500/3,490 put credit spreads, and while our short strikes are not quite yet out of the money (OTM), it is turning out to be a profitable trade so far. Today, we have patiently observed how AMZN behaves heading into its earnings announcement. While the plan for this trade was to hold through earnings, a move into a new all-time-high above $3,550 may offer us an opportunity to take a good chunk of our max profits before the close. We’ll be patient and flexible, but should we have 60%+ of our max profit on the spread before the close, it may be wise to take some exposure off the table and lock in some gains.
As we discussed in the Simpler Trading Options Room yesterday, weeks like this are a good time to “take our foot off the gas,” and focus on refining our watch lists as opposed to forcing trades in the nasty chop. The markets are on standby here waiting for big earnings to pass, and since we need the wind of the markets behind us, we should have the same willingness to be on standby as well!
Stay tuned for our next newsletter on Friday, as we’re excited to update you on how our AMZN trade, as well as others, perform heading into the end of the week!