On Tuesday I posted a few earnings breakout plays. A backer of BWLD (Buffalo Wild Wings) gave me some heat for not entering pre-earnings, and asked why I take such a conservative approach to earnings plays. Here is my answer:
While it’s great when you catch a BWLD earnings move, it hurts just as bad when you are the victim of an ADM-like breakdown. To combat these two extremes, I prefer to enter on post earnings breakout moves that make there move over resistance. For example, in the case of ADM, I would have entered on a breakout over $39.75. The stock would have entered intermediate new highs with a ton of nearby support.
Each and every day during earnings season, I take a look at the following day’s earnings schedule and pick out stocks that are basing near support or resistance levels. A move above this level is likely to yield positive results, as prior support should become resistance.
If you miss the breakout move, earnings breakouts can also become good breakout-pullback plays. In the case of BWLD, a pullback in the next few days that holds at the breakout point could provide a good entry, with a stop just under the breakout bar.