Wanting to Play Earnings | Podcast Episode #392

0:07
Hey, I’m Ryan Mallory and this is my Swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex, ever changing world of finance.

0:16
Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

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You can succeed at the stock market and I’m ready to show you how. Hey everybody, this is Ryan Mallory with Swing Trading the Stock Market and today’s episode we’re going to talk about wanting to trade through earnings. Now there’s a difference between trading and investing.

0:42
Obviously investing is going to be more long term. You know stocks that you’re holding for multiple years where swing trading stocks that you’re and it doesn’t have to just be swing trading, it could be scalping or day trading. But from a swing trading standpoint, that’s going to be from like a couple weeks to a couple months usually.

0:57
So with the market just being up, the S&P 500, the NASDAQ being up 14 out of 15 weeks matching A historic run, something I’ve don’t think I’ve ever seen. Honestly, I don’t know the last time that that happened, but I guess it matches something according to some of the research that’s out there.

1:12
I don’t recall that ever happening in my lifetime. Not to say that it has and it’s just these kinds of runs are very, very, very rare. And to even try to play them in the hopes that you’re getting it. It will often lead to bad trading because more times than not you’re not gonna get a run of 14 out of 15 weeks to the upside.

1:29
So what it brings about 1:00, I’ve noticed. I’ve noticed a lot more trading going on with retailers.

1:36
It feels like it’s an infinite money making glitch in the markets, especially with stocks like NVIDIA or with AMD or meta, Netflix, Amazon.

1:47
You feel like you’re just able to print money with every trade that you make. Especially when you’re buying like some of these out of the money calls I read on one message board the other day where somebody you know has paid off his entire house with out of the money and video calls that he’s been buying on a weekly basis.

2:02
Horrible strategy, but in a rare market event where you’re up 14 out of 15 weeks, yeah, something like that will probably pay, especially when your stock is at the heart of a market bubble with AI.

2:13
So what I’m also seeing too, is that a lot of folks wanting to play earnings suddenly now you go back to 2022, never got emails about people wanting to hold because you were seeing but pure awful havoc that earnings can cause to your portfolio when you pulled a stock through earnings.

2:27
Now we’re seeing the exact opposite where people are like, man, look how much money I could be making if I just held through earnings.

2:36
So a lot of folks went in to play earnings, and that’s really the subject of this podcast here today.

2:42
So I got an e-mail from a guy, I used him in a previous podcast episode too.

2:46
And I used a Reggie Roby illustration from the Miami Dolphins. He’s a former punter for the Dolphins and probably their best punter of all time.

2:55
So I gave him that name cuz there was a Dolphin illustration there and I love the Miami Dolphins, so I called him Reggie.

2:59
So I’m gonna keep calling him Reggie here as well.

3:04
And by the way, I don’t use people’s real names. I make it a point not to just because I don’t want people to regret having their name blasted on this podcast 10 to 15 years from now if they wish otherwise.

3:11
So Reggie writes Ryan, just wondering if there’s ever a scenario that you do hold through earnings.

3:20
I’ve tailored my trading to mostly longer swing trades of around two to three months, mostly picking up shares of blue chip stocks that are consolidating near 5 year lows.

3:29
Sometimes the consolidation lasts longer than I hoped, hence the two to three month time frame. Not even sure if you consider this a swing trade.

3:35
So far this method has worked out well, but I’m almost always selling trades right before earnings. Are there any scenarios that you would hold through earnings?

3:43
I’ve run into a lot of my trades that have started to break out higher within a month of earnings. So by the time the earnings hit, I’ve already taken some of my profits along the way.

3:52
I may only have 10 to 20% of my original shares left in the trade, and I’m sometimes hesitant to let that amount ride.

3:58
You can call me Reggie Robidue to a football analogy in one of my past emails. So feel free to use that again.

4:05
Thanks, Reggie.

4:08
OK, good question. Like I said, one of those things that I’m seeing happen a lot more, I think 1 where a lot of people are questioning whether or not they should be holding a stock due earnings is now with PLTR Plantar.

4:20
I think that’s how you say the company’s name. Maybe it’s Palantir One.

4:23
I don’t watch CNBC, so I never actually hear a lot of these stocks actually said by their full name. Usually I’m just going by stock symbols and that’s usually what I know.

4:31
The stocks buy buy their stock symbols. So apologies if I don’t say some of these stock symbols correctly.

4:37
So I mentioned earlier when I started the podcast episode here that there is a difference between holding earnings to investing versus trading, scalping day trading, scalping, trading day trading.

4:50
You can be wrong on the earnings and then you’re spending like the rest of the year trying to make up for the errors of 1 trade.

4:55
From a long term standpoint, your time horizon is multiple years. You’re not trying to get out unless for whatever reason it goes like NVIDIA on you and it goes up like 1400% over a couple of year period.

5:04
Outside of those rare circumstances, long term investments are meant for a much longer period of time.

5:12
So you’re not gonna be getting out every earnings and then getting back in after earnings because that might be the lion’s share of the moves that are happening is around earnings like it does for a lot of stocks.

5:21
So for long term, in order for it to be a long term investment, you have to hold for more than three months.

5:26
You gotta hold it just for a year straight in order to get long term capital gains tax treatment.

5:39
He questions whether or not that’s still considered a swing trade. Yeah, I’d still consider it a swing trade. It might borderline with a position trade as well.

5:48
But one of the things I would say just about the strategy itself and these are questions, I’m not saying it’s a batch strategy.

5:54
I’ve never back tested, never looked into it before. But these are some of the questions that I would ask for.

5:59
OK. So you’re buying stocks that are trading at five year lows.

6:04
They could be their 6th, they could be their seven years. For all you know, I mean they’ve already been there five years.

6:08
What’s another 20% of time spent at those lows to make it 6 years rather than five years?

6:12
And then since 2009 when we came out of the Great Recession, with the exceptions of 2022, you had a sideways market in 2015 and then about 5 weeks in 2020, It’s been a very strong bull market.

6:21
So the question to ask yourself is whether this strategy is a product of something technically that’s working, where you’re getting that consolidation at five year lows or is it just benefiting from a sympathy play with the market continuously rising over the last 15 years with the exception of a few instances.

6:34
And is there a better scenario?

6:36
Perhaps it’s better to buy stocks trading at one year lows or trading at or around their 200 day moving average, which 200 day moving average is a little bit less than the moving average of like one year.

6:44
I think about in a given year there’s about more like 230 to 240 trading sessions in a single year.

6:51
So 200 day moving average kind of gets most of that entire year picture with its MA.

6:57
So is there a better scenario than just five years?

7:00
Maybe it’s a three-year, maybe it’s a 10 year low. But whether or not that’s the case, you wanna ask yourself whether or not these stocks are rising just in sympathy with the broader and more favorable market conditions of the past 15 years.

7:15
And if that’s the case, are you leaving profits on the table by trading some of these stocks that have been headaches in the past, hoping that they’re finally gonna rebound?

7:24
Because for the ones that do, there’s also others out there that struggle.

7:27
One of them to me that makes a lot of sense is PayPal, that I think it’s a company and if you look at their, the company overall, they haven’t really been innovating much over the past 10 plus years.

7:36
It’s pretty much the same platform. It’s it’s really unchanging.

7:39
And so there’s a reason for why they’re stuck in the mud. And so if you try to do a position trade hoping, you know that after, you know, five years trading at these lows that they’re somehow gonna miraculously turn around, you may not get that kind of a turn around in the two to three months.

8:04
So you’re almost trying to force a variable on the markets that says, OK, you’ve been down here long enough.

8:09
I think I think you need to go ahead and rally. And then in some cases they will because the market will rally.

8:13
But you have to just ask yourself whether or not it’s out of sympathy with the broader market conditions being so favorable over the last 15 years or whether or not there’s something to what you’re doing that makes it work.

8:23
Again, I’m not trying to throw cold water on it.

8:26
Just like in some other episodes where some people have put strategies out there, I ask these questions because I think they’re good questions for any trader to be asking themselves.

8:32
You want there to be an edge that goes beyond just the market.

8:36
I talk about the top down trading strategy, where when I make a trade, I want the market, I want the sector, I want the industry to all be in alignment with each other before I even consider whether or not I want to get long on a stock.

8:47
And then where the edge comes from after all those are in alignment.

8:51
Because I want that sympathy from the markets being good and favorable, the sectors and the industries being good and favorable.

8:57
That when I do the technical analysis, which is my edge, that I want the stock to go up with everything else.

9:03
So that’s how I approach my trading, That’s how I approach with my edge.

9:08
Here, you wanna just make sure that you’re not trading without an edge and that you’re just benefiting from a market sympathy.

9:14
So there’s the questions to ask.

9:16
Again, it may be a very legitimate strategy.

9:19
I haven’t back tested it, I haven’t tried it out.

9:22
But with any strategy that you guys send me, any questions about your trading approach, I’m gonna give you some thoughts to ponder.

9:28
And it doesn’t mean that your trading strategy’s bad or that it doesn’t work, So don’t ever take offense to it.

9:34
But I wanna give you guys some legitimate questions to ask yourselves.

9:38
OK? Is he on to something here?

9:41
Have I looked at it from different time frames?

9:44
Have I looked at it from just like the 200 day moving average or a two year low or a three-year low?

9:49
Why the five year, Why not ten years?

9:52
So those are questions that you wanna ask yourself when you’re developing your edge in the market.

9:56
And then this person here, he’s questioning whether to hold a swing trade through earnings when he starts to see it take off into right before earnings happens.

10:06
But I would point you out of stock just recently here, Snapchat or Snap, Snap, that stock was flying into earnings.

10:13
I mean, it was running super hot. And what happened after earnings, it drops like 3540%.

10:19
I think, I don’t know, it was definitely over 30% and it was a lot. And I think there’s even some follow through the following day.

10:24
But that stock has given up all those gains prior to the run up of its earnings.

10:29
So in that case, if that was a stock, which has historically been very difficult to trade, probably would even qualify as a stock that that would fit his criteria for trading, he’s gonna be glad. Reggie’s gonna be glad that he sold his shares and snap prior to earnings.

10:46
But I get that it’s hard and I’m seeing it a lot. I see it sometimes in the Discord where people are joking.

10:51
I was like, man, maybe I should start holding it to earnings and everything. And even me, I look at some of these stocks and I’m like, jeez, are we just nothing goes down anymore.

10:58
I know going into earnings, it felt like there was a little bit of a cautious tone, especially from the banks, from the airlines.

11:02
Initially we were selling off actually quite a bit from earnings and then you had the tech place that started coming up and I think it all changed with meta and Amazon when those two reported and then you had like a 20 plus percent run on meta right after earnings and we’re talking about like a plus trillion dollar company here.

11:21
It changed the whole tone of the market.

11:24
Now everybody’s like oh man, let’s rally everything. I think Disney rallied and they had crappy earnings but they rally because it’s like oh, I think Disney’s back, well why is it back?

11:31
Oh, it’s back and I’m not bad mouthing market.

11:35
Market does what it was. Price is the only thing that pays.

11:37
So, but I’ve noticed a change in the behavior and the mentality of traders since meta and Amazon earnings where the market has been much more forgivable.

11:47
I think some of the stocks that are rallying right now, if they had reported initially, I think the market would have probably killed them even like you’d take PLTR earnings wasn’t that great.

11:57
And I know that offends some people, but they’re doing really impressive job at these press conferences guiding higher.

12:03
And what if they missed at the next earnings report? Just guide higher there too and people will forgive you for the misguidance last time.

12:11
That’s really all they’re doing there. The conference calls and the guidance has kind of become comical because people are figuring out how to game it.

12:18
And then you have CEOs and directors and above that for most of these companies that have options that are tied to the performance of their stock price.

12:23
So what do you think they’re gonna do? You think they’re gonna go on there and and crap on their livelihood?

12:27
No, they’re gonna say everything that you gotta do is like, oh, we didn’t have a good quarter. Let’s tell them that we’re gonna do a buy back.

12:34
We didn’t have a good quarter. Hey, make sure to slip in about 15 inches of AI.

12:41
How? It’s revolutionizing our product string. Wait, we’re not really using AI.

12:45
Are we using a chat bot at least? Well, we are using a chat bot.

12:48
OK, cool, we’re using AI. Then hype up that chat bot, but call it AI.

12:54
You see where I’m going with all this? The earnings report, They’re going through the roofs here and people are piling on.

12:59
You’ll get a stock that gaps up 30% and what do people do? It’s like, let’s drive it higher.

13:03
You saw it with ARM this week. ARM Holdings stock gapped up like 20 plus percent and it goes up like 60.

13:12
Fifty 60% by the end of the day. Crazy stuff.

13:17
I’ve not seen this much hype in our earnings season in a long time. And I thought maybe going into this earnings season people would be, you know, maybe a little bit more cautious following the run that we’ve had off the November lows.

13:23
No, it’s only, it’s only accelerated.

13:29
It’s only accelerated the moves. So I get that when you’re watching earnings right now, it’s like, man, why do I sell every time?

13:37
I had KKRI sold it the day before earnings. This was, this was this week, this was on Monday sold out of it and I think I sold out of it like 87 ish.

13:48
And now it’s trading. I don’t know.

13:53
Let’s see what it closed at today.

13:53
Yeah, closing at 97 guys, 10 bucks higher sends earnings. Am IA little bit frustrated by that.

13:58
Yeah. Do I wish I would have helped through earnings?

14:01
Well, hindsight sure. But based off of what I knew going into earnings, no.

14:05
And so there is that. Man, am I doing the wrong thing by not holding a stock due earnings.

14:09
But let me remind you, you can have all the good stock trades in the world, but you get 1 snap or you get one company that really messes you up on your holdings that can completely ruin your year.

14:23
So that’s what I would say there. And and also if you go back to 2022 now some of the companies that were reporting back then if you take some of the big tech stocks and you compare their earnings reports to what you’re seeing right now, there probably wasn’t much difference in what they were reporting in terms of like how much they were beating by or how much they were missing by.

14:39
But the reactions were totally different.

14:41
Right. Now you may get a similar, similar earnings report to something that was seen in 2022, but the market will rally the stock 30%, but in 2022, they, they sold it off 20 or 30%.

14:49
And why is that? Because the climate had changed, the perception had changed.

14:52
And so people were panicking with everything in 2022.

14:55
And it wasn’t even that bad. I mean, yeah, it was down 20%.

15:00
It was a bad year, but it wasn’t like a 2008 ora.com bust.

15:03
But nonetheless, the perception had changed on stocks and earnings where everybody was selling everything for the most part.

15:09
But then you get into 2023, everybody’s cocky, everybody’s excited.

15:13
It’s it’s like the roaring 20s again.

15:16
And so then everybody’s like, I’m not worried about this.

15:19
I’m going to go ahead and keep keep buying it.

15:21
I’m gonna hold it through earnings.

15:23
Heck, they they barely missed. Let’s buy it.

15:27
They mentioned AI, let’s buy it even more.

15:30
They got a buy back. They got an increased dividend.

15:32
Let’s keep buying.

15:34
But eventually that mentality will change and often times it’s too late for traders to realize it until they’re actually in those earnings seasons where they’re holding stocks due because they it’s worked in the past and all of a sudden there’s 30% wipeouts are destroying their portfolio.

15:45
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15:51
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16:04
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16:10
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16:15
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16:22
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16:27
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16:29
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16:38
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16:44
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16:49
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16:57
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17:11
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17:22
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