3 Trading Strategies We Like Right Now
Last week we saw the Fed drop rates just a quarter point while giving some statements that put a “one and done” approach to Fed policy back on the table.
The Nasdaq suddenly dropped 2% on the news during the post-decision conference when the sentiment was revealed. The next day new tariffs were announced that hit the market with another sudden 2%+ move lower.
We went bearish Thursday evening in the Daily Alert just before a 5%+ drop in the market averages.
An expectation of a China retaliation and their next move announced Monday night also helped to fuel this pullback. We have now seen about an 8% draw-down so far on the Nasdaq from the recent highs to the lows.
Last Monday in the Weekly Alert we talked about how you often see a market pullback in early August. We also noted its generally one of the worst periods of the year for most swing trading strategies.
However, we still look for good trading opportunities during a sharp pullback during a longer-term bull market. As volatility increases we start to turn our attention to shorter-term swing trading strategies that can do well as the market trends lower during a reasonable pullback.
Earnings Eruptions Strategy
The earnings eruptions strategy and high tight flag breakout, when they meet our strategy rules, are at the top of our trading menu at that point.
Last week we saw one of the better earnings eruptions trades set up this year that we noted last Tuesday night in the Daily Alert. ENPH had an enormous beat and raise, great long-term trend and real nice pre-market pattern the next morning.
Even on a key Fed decision day, ENPH reached the technical entry point in the strategy and soared 16% from that point within a couple days.
ENPH raised Q3 guidance by a whopping 40%+ and could set up a nice earnings flag later this month.
Post Earnings Strategies on Recent IPOs
On Friday we saw PINS meet the requirements in our new IPO strategy on a catalyst. The price reached the technical entry point, only pulled back about 1%, and then surged over 4% within an hour to reach our first profit target.
Over the past year or so we have been studying dozens of IPOs and how they behave when they meet the standards in our optimized earnings eruptions and high tight flag strategy.
Recent IPOs tend to have more volatility near the market open after a big catalyst or technical breakout. They also behave a bit differently during the summer months both in 2019 and 2018.
On Friday we saw 3 stocks that met the earnings eruptions strategy rules. All 3 easily reached the first profit target within an hour. As volatility increases, we start to focus more on the first target – taking more of our position off at that point unless it really has the home run potential and start like ENPH.
After taking profits off at the first target, we just stop it around the entry point. So, whether its a home run trade or not, we still lock in a profit if it hits the first target.
Of course, we work hard to differentiate between the best gap and earnings plays and the rest of them. Otherwise, we historically have had more stocks that miss the first target and more that turn over hard before then.
Weaker stocks, weaker reports and weaker gaps are just not worth our time.
High Tight Flag Breakout Strategy
On Thursday we had a high tight flag breakout on GOL. We are not too excited about low growth, commodity-related industries like airlines. However, the market was rebounding at the time and the other qualifications in the high tight flag strategy were met.
GOL reached the entry point, consolidated for a half hour or so, and then took off to gain about 4% within an hour. After the tariff news came out, the market began to dive and we got out with about a 1% profit as it was failing a double bottom.
Whenever we see a sudden drop like that in the market on new news, its probably best to stop out a long trade on an airline. If the market suddenly drops 5% within a couple days, especially during the summer, its probably going to affect the long trade.
This week we continue to see stocks nearly meeting all the requirements in the IPO version of the earnings eruptions trade do well. Yesterday, ALLK reached the entry point and surged 4% quickly without even pulling back 1%.
Today its performing a great follow-on move explained more in a separate blog post.
Just because the market is pulling back sharply does not mean there are not long strategies that can work. The earnings eruptions strategy continues to do very well.
Stocks that fit the quantitative and technical criteria in our longer-term swing trading strategies should come up on our radar later this month as well. In fact, ENPH is setting up an earnings flag and could meet our criteria at the breakout point if it gets there later this month.
We also are eyeing a potential high tight flag breakout tomorrow in the Daily Alert this evening. Although volatility is a little high, it still has a good shot at a big move if we get the kind of catalyst we are looking for tomorrow morning and it breaks its short-term downtrend.