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Negative earnings
reaction reversal
Catalyst: Earnings beat, lower guidance
Setup: Negative earnings reaction reversal
Trades: Trend PB
Ticker: MSFT
Date: 25-1-23
Bigger picture: SPY and VIX
Intraday levels SPY:
Gapping down 1%, there
was a very strong reclaim
today. Trended up from
11AM and made 1.2atr.
Closed very strong near
important 400-dollar level.
VIX level : 19
VIX closed at 19 after
popping above 20. Same as
yesterday.
Gameplan/checklist
1) Premarket gameplan.
MSFT
Catalyst: beats but guides lower.
Setup: negative earnings reaction gap down of 3%.
Technicals: unlike a lot of big names, MSFT couldn’t reclaim the 50SMA. It’s kind
of in a range now close to the bottom of the range. It’s looking weak but it’s also
could maintain in a range.
Higher lower
I did like the setup, but my worry was that the gap had already been filled before
it pulled back. I did well to recognize this was partly a market play and SPY was
very strong. SPY being strong was the main reason for a thesis to go higher.
Post notes
Good read. Recognized the importance of support level. Also was openminded
about the potential of an uptrend forming.
Potential to go higher/lower MSFT
Holding above/below key level? No
Strong/weak market (bigger
picture)? Yes
Strong/ weak market intraday? Yes
Strong/weak fundamental
catalyst? Medium
Strong/weak setup? Yes but
Elevated RVOL? 2,7
Room to trend on daily? Mwah
Room to trend intrday, based on
setup?
not soo
much
Grade 6,5
Catalyst &
Fundamentals
Catalyst: Earnings beat, lower guidance.
Setup: Negative earnings reaction reversal
Float: 7,45B
Institutional Ownership: 72%
Short %: 0,51%
ATR: 6,39.
Average Daily volume (50 day): 29,2 million.
Daily volume: 66,5 million.
Gap%/Gap ATR: -3,18% / -1,2ATR
RVOL: >2,5.
Daily chart
Strong HTF support for extra reversal conviction!
MSFT & DFS
Technical
Analysis:
(HTF) Trend PB
10m holds above 9EMA,
5m holds above 20 EMA.
Shallow volume during PB
Pullback visible on multiple time
frames: 1m, 5m, 10m.
Bounce of key level: 238
Elevated volume when PB
starts to work.
Ideal trade management
Trade management
Entry: 20,7% of the range
Exits:
-Just like I have done last week on
playbooking and on my checklist, I should set
an ATR core target. The stock was up 1.57ATR,
then set a target at 1.75ATR!!
-I sold into strength which is okay. I sold 33%
and that should have been 15%.
Then I panic sold because we were possibly
having an above average red volume bar. Fuck
that. I can not anticipate this. If does above
average volume, so be it. Then I sell a core
lower.
-Trailed up 16% along the 5m 20EMA. Missed
the big push on volume. Sold that when the
trend was likely over. MSFT, as a market play,
showed relative weakness to SPY: SPY was
going up but MSFT as consolidating and
making that lower high. Therefore, I sold once
price was below the 20EMA.
Spencer’s performance measure: 48%
Total: 3.5R
Set a measured move and hold a core position!
PB. H to Trend H. in ATR
n 35
>=0,25ATR 51,4%
>=0,2ATR 57,1%
<0,10ATR 14,3%
0<0,07ATR 11,4%
The sample is still small, and I should wait for
more data. But there are few remarks I want to
make based of this small data set.
• Over 50% of the moves make a push over
0,25ATR.
• I sold for 0,06ATR new high and this only
happened 11% of the times that this actually
was the HOD/LOD.
• Most of those ‘smaller’ moves were technical
plays or clearly lesser setups. The tickers with
a strong/weak catalyst or earnings, those
made the biggest move. MSFT made a 0,39
move. I should have aimed for .25 and held
for a reason2sell.
Catalyst: Earnings beat, lowers guidance for cloud.
Setup: Negative earnings reaction reversal
trade: Trend PB
Setup fit the catalyst?
We had a very important support level that held. This proved to be very strong on
DFS. This level wasn’t as significant as DFS, but it was a obvious level. Whether I
would have given this setup high odds premarket is difficult. We have seen the
same on GE yesterday. It’s difficult to call reversal based on lowering some
guidance. IF they guide down for the full year that’s very negative. But now they
guided down on one aspect of their report.
-Did the trade fit the setup?
Yes. This is partially a market play. SPY being strong and trending helped a lot.
I was wondering, since we had filled the gap of the reversal play, how much room
we had left to go up. Price was also running into the 50SMA. But if SPY is strong
or trending, so could MSFT.
(Ideal future: this catalyst + this setup + plus this trade = A+/B+)
I would say A-. If we had formed an opening range reclaimed this and pulled back
on this level without filling the gap, we might have more upside potential.
What could I have done
better?
• I would like to do a better job at anticipating this setup. We’re in a
market environment where in line earnings are getting bought up.
Another cue was a big HTF level. In the future I want to anticipated
this setup and look to get in a little bit near support, and then get
larger above VWAP. There was a solid breakout opportunity to do
that.
• I didn’t have a good idea in advance where I needed to sell my
core. I cannot anticipate a reason2sell if my core target hasn’t been
met. Just stick to the rules I have now. These rules will result in
bigger wins. I will encounter new problems, for example when
stocks have a reason2sell before my core target is hit, but then I
must work on that. I never get perfect execution.

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negative earnings reaction reversal -Trend PB - MSFT - 25-1-23.pptx

  • 1. Negative earnings reaction reversal Catalyst: Earnings beat, lower guidance Setup: Negative earnings reaction reversal Trades: Trend PB Ticker: MSFT Date: 25-1-23
  • 2. Bigger picture: SPY and VIX Intraday levels SPY: Gapping down 1%, there was a very strong reclaim today. Trended up from 11AM and made 1.2atr. Closed very strong near important 400-dollar level. VIX level : 19 VIX closed at 19 after popping above 20. Same as yesterday.
  • 3. Gameplan/checklist 1) Premarket gameplan. MSFT Catalyst: beats but guides lower. Setup: negative earnings reaction gap down of 3%. Technicals: unlike a lot of big names, MSFT couldn’t reclaim the 50SMA. It’s kind of in a range now close to the bottom of the range. It’s looking weak but it’s also could maintain in a range. Higher lower I did like the setup, but my worry was that the gap had already been filled before it pulled back. I did well to recognize this was partly a market play and SPY was very strong. SPY being strong was the main reason for a thesis to go higher. Post notes Good read. Recognized the importance of support level. Also was openminded about the potential of an uptrend forming. Potential to go higher/lower MSFT Holding above/below key level? No Strong/weak market (bigger picture)? Yes Strong/ weak market intraday? Yes Strong/weak fundamental catalyst? Medium Strong/weak setup? Yes but Elevated RVOL? 2,7 Room to trend on daily? Mwah Room to trend intrday, based on setup? not soo much Grade 6,5
  • 4. Catalyst & Fundamentals Catalyst: Earnings beat, lower guidance. Setup: Negative earnings reaction reversal Float: 7,45B Institutional Ownership: 72% Short %: 0,51% ATR: 6,39. Average Daily volume (50 day): 29,2 million. Daily volume: 66,5 million. Gap%/Gap ATR: -3,18% / -1,2ATR RVOL: >2,5.
  • 6. Strong HTF support for extra reversal conviction! MSFT & DFS
  • 7. Technical Analysis: (HTF) Trend PB 10m holds above 9EMA, 5m holds above 20 EMA. Shallow volume during PB Pullback visible on multiple time frames: 1m, 5m, 10m. Bounce of key level: 238 Elevated volume when PB starts to work.
  • 9. Trade management Entry: 20,7% of the range Exits: -Just like I have done last week on playbooking and on my checklist, I should set an ATR core target. The stock was up 1.57ATR, then set a target at 1.75ATR!! -I sold into strength which is okay. I sold 33% and that should have been 15%. Then I panic sold because we were possibly having an above average red volume bar. Fuck that. I can not anticipate this. If does above average volume, so be it. Then I sell a core lower. -Trailed up 16% along the 5m 20EMA. Missed the big push on volume. Sold that when the trend was likely over. MSFT, as a market play, showed relative weakness to SPY: SPY was going up but MSFT as consolidating and making that lower high. Therefore, I sold once price was below the 20EMA. Spencer’s performance measure: 48% Total: 3.5R
  • 10. Set a measured move and hold a core position! PB. H to Trend H. in ATR n 35 >=0,25ATR 51,4% >=0,2ATR 57,1% <0,10ATR 14,3% 0<0,07ATR 11,4% The sample is still small, and I should wait for more data. But there are few remarks I want to make based of this small data set. • Over 50% of the moves make a push over 0,25ATR. • I sold for 0,06ATR new high and this only happened 11% of the times that this actually was the HOD/LOD. • Most of those ‘smaller’ moves were technical plays or clearly lesser setups. The tickers with a strong/weak catalyst or earnings, those made the biggest move. MSFT made a 0,39 move. I should have aimed for .25 and held for a reason2sell.
  • 11. Catalyst: Earnings beat, lowers guidance for cloud. Setup: Negative earnings reaction reversal trade: Trend PB Setup fit the catalyst? We had a very important support level that held. This proved to be very strong on DFS. This level wasn’t as significant as DFS, but it was a obvious level. Whether I would have given this setup high odds premarket is difficult. We have seen the same on GE yesterday. It’s difficult to call reversal based on lowering some guidance. IF they guide down for the full year that’s very negative. But now they guided down on one aspect of their report. -Did the trade fit the setup? Yes. This is partially a market play. SPY being strong and trending helped a lot. I was wondering, since we had filled the gap of the reversal play, how much room we had left to go up. Price was also running into the 50SMA. But if SPY is strong or trending, so could MSFT. (Ideal future: this catalyst + this setup + plus this trade = A+/B+) I would say A-. If we had formed an opening range reclaimed this and pulled back on this level without filling the gap, we might have more upside potential.
  • 12. What could I have done better? • I would like to do a better job at anticipating this setup. We’re in a market environment where in line earnings are getting bought up. Another cue was a big HTF level. In the future I want to anticipated this setup and look to get in a little bit near support, and then get larger above VWAP. There was a solid breakout opportunity to do that. • I didn’t have a good idea in advance where I needed to sell my core. I cannot anticipate a reason2sell if my core target hasn’t been met. Just stick to the rules I have now. These rules will result in bigger wins. I will encounter new problems, for example when stocks have a reason2sell before my core target is hit, but then I must work on that. I never get perfect execution.