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D1 Gap and Fail - Technical trades - NKE - 21-12-22.pptx

After weak price action during the open, NKE failed to hold an important price level and started to trend down towards the next support area. I playbooked this nice short opportunity.

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D1 Earnings Gap & Fail
Catalyst: Earnings beat
Setup: D1 Earnings Gap & Go/Fail
Trade: Fail of R1
Ticker: NKE
Date: 21-12-22
Bigger picture: SPY
After retracing over 7.5% in five
days SPY has bounced and made a
lower low.
Market breadth isn’t extremely
negative yet. But it’s clearly not as
strong as the cycle we started with
the first positive CPI print on 10
November.
Bigger picture: VIX
The volatility has decreased a lot
since the beginning of October.
But we are still trading above 20
which means this is a market with
high volatility and traders should
lean more towards market plays
than stocks in play.
Earnings
Fundamentals
Float: 1240 million.
Institutional Ownership: 82,9%
Short %: 1,3%.
ATR: 3,21.
Average Daily volume (50 day): 8 million
Gap: 13,3% / 4 ATR
Expected Earnings: $0,65 EPS & 12,54 billion REV
Reported Earnings: $0,85 & 13,32 billion REV
Earnings beat: 30% EPS , 6,2% REV
Past Earnings: Last 5 days closed red.
Gameplan
-Identify areas of interest? These are prices a stock will tend to trade to, after they had
a catalyst. If a stock can move through these levels, they may have an explosive move.
116.50 seems the most significant level. It is the 3month high and an obvious level.
8.5/10
This is also the level we open at and has shown some resistance in premarket. Therefore,
this looks to me as an inflection point.
If this fails, I want price to hold 114-114.50 and look for a bounce and reclaim. 7/10 level
because it’s a premarket area and prior daily resistance. But the latter isn’t too obvious or
significant.
118.50 is another potential level. It’s a HTF level, a former lower high back in August.
7.5/10.
I am looking to spot levels intraday as well.
Do I have a strong bias. Most of the time I shouldn’t.
The market is gapping up 0.7%. If we make a strong move, I think NKE could go as well.
The last two years there are only 1 or 2 earnings where NKE closed green. It depends on
the market.
But I am unbiased. 116 area is going to be very important off the open.
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D1 Gap and Fail - Technical trades - NKE - 21-12-22.pptx

  • 1. D1 Earnings Gap & Fail Catalyst: Earnings beat Setup: D1 Earnings Gap & Go/Fail Trade: Fail of R1 Ticker: NKE Date: 21-12-22
  • 2. Bigger picture: SPY After retracing over 7.5% in five days SPY has bounced and made a lower low. Market breadth isn’t extremely negative yet. But it’s clearly not as strong as the cycle we started with the first positive CPI print on 10 November.
  • 3. Bigger picture: VIX The volatility has decreased a lot since the beginning of October. But we are still trading above 20 which means this is a market with high volatility and traders should lean more towards market plays than stocks in play.
  • 4. Earnings Fundamentals Float: 1240 million. Institutional Ownership: 82,9% Short %: 1,3%. ATR: 3,21. Average Daily volume (50 day): 8 million Gap: 13,3% / 4 ATR Expected Earnings: $0,65 EPS & 12,54 billion REV Reported Earnings: $0,85 & 13,32 billion REV Earnings beat: 30% EPS , 6,2% REV
  • 5. Past Earnings: Last 5 days closed red.
  • 6. Gameplan -Identify areas of interest? These are prices a stock will tend to trade to, after they had a catalyst. If a stock can move through these levels, they may have an explosive move. 116.50 seems the most significant level. It is the 3month high and an obvious level. 8.5/10 This is also the level we open at and has shown some resistance in premarket. Therefore, this looks to me as an inflection point. If this fails, I want price to hold 114-114.50 and look for a bounce and reclaim. 7/10 level because it’s a premarket area and prior daily resistance. But the latter isn’t too obvious or significant. 118.50 is another potential level. It’s a HTF level, a former lower high back in August. 7.5/10. I am looking to spot levels intraday as well. Do I have a strong bias. Most of the time I shouldn’t. The market is gapping up 0.7%. If we make a strong move, I think NKE could go as well. The last two years there are only 1 or 2 earnings where NKE closed green. It depends on the market. But I am unbiased. 116 area is going to be very important off the open.
  • 8. Open weakness: Fail to hold above resistance A) Describe the price action -During the open price made a 1ATR move. -118,50 (upper red line) is a 7,5/10 level and fails to hold during the open. -The 20 and 9 EMA are about to crossover = bearish. -During the open there are a lot of wicks to both sides. When price made a new HOD the volume was very low (volume divergence) and this is usually bearish. -Price broke out to the upside, traded in a small range but now is starting to break down. -Biggest CHOCH is the EMA crossover and consecutive red candles breaking low of range while failing to hold above resistance. B) Project a path forwards -I didn’t have a particular strong conviction. Holding above 116,50 was going to be very important. But the failure to hold above the 118,50 area also tells me that it’s not very likely will trend higher. Given the current price action, I would give a high probability (60-70%) to a move lower. If we hold below VWAP, then a move down towards 116,50 support area would be the next obvious level. When we break this level with high volume and hold below significantly, then we might have a trad2hold or possible trend day.
  • 9. Open weakness: Fail to hold above resistance C) Identify a possible trade opportunity Given a high probability of going lower. It makes sense to take a move2move trade towards 116,50. I would like to get in for a pull in against the 9 or 20 EMA. -We have already move 1 ATR within the day. If we don’t break and hold below 116,50, we are likely in a range day and might eventually go up and trade to VWAP. I think this scenario has a high probability of 70%. Scaling out most of the position at 116,50 would be the best trade management. -IF we hold below and pull back cleanly into one of the EMA’s, THEN I can add back the size and play for a trade2hold. My stop would be a reclaim of 116,50. - The range is about 2 dollars and I must capture at least a point!
  • 10. Trading of key levels– Trade Strategy Stock selection -Stock in play with a significant (technical) catalyst, earnings report or strong theme. -Elevated RVOL above 3. -Strong move from the open (0.75ATR move) OR exceptionally strong volume during open. Others/ x-factors -hot sector, look for other stocks in same sector to receive upgrades, strong premarket movement. -Strong market. -High short interest. -Earnings beat & guidance. Overall thought process Although I tried to be unbiased from the start. It was clear that the open price action was very weak, and it couldn’t hold below a key level. When there are higher time frame levels with an 8/10 significance level, I should be prepared to take technical trades of these levels. These are generally move2move trades, but I should also assign probabilities to a potential trade2hold. Technical trade -8/10 support and resistance levels. -Fail to hold above/below key levels for significant period. - 9 and 20 EMA crossover. -Changes in tape/price action.
  • 11. Technical trade– Trade Management . Move2move – Exit strategy Profit taking into psychological numbers and overextensions. -Comes into price target/indicator and begins to reject this price. -Heavy buyers on the tape into key level. -Consolidation break to the upside. -Fails to hold below key level. -Sharp unstainable moves higher. Entry technical move2move trade Enter after a fail to hold key level, when price makes a lower high and bounces of the 9 or 20 EMA .
  • 12. Technical Analysis D) Asses your decisions and expectations. -Moment to enter the trade was very brief, but clearly visible on the trade. -Consolidation period below VWAP would have provided an opportunity to double up for break below consolidation. -Sharp reclaim of support confirms that we’re not going to trend today.
  • 13. Reading the tape : Entry upon first higher high. • Price makes a 1m new high. Green prints are coming through and then offers show up at ,82 and can’t lift. • They hold briefly and then the bids step up strong at ,79. • But we stall, can’t break ,82, red prints come in and the bids drop 10 cents.
  • 14. Change of price action • Best RR trade was from R1 to S1. After a reclaim of S1 RR diminishes because it’s not likely to test R1 again. Target of VWAP has the highest probability but provides less reward. • Price trades to VWAP but there’s clear change of character in trend. Price goes more sideways and it’s not really trending. Not something I would like to trade. • Best to look for EOD test of S1, or strong break and hold of VWAP for trade towards R1. • Best opportunities have passed.
  • 15. EOD break of support. • Breaks support on increased volume and pulls back quickly into the 20 EMA. • Like open price action: quick bounce before continuation. • Trades to S2/ LOD and bounces. NKE closes red.