The Shakedown 4/28/19

Small Cap Back?

For the first time in a while, we saw small caps (IWM) lead the market higher, which is a good sign for 'risk-on' stocks. While the major indices such as the S&P 500, the Dow 30 and the Nasdaq have been grinding higher for huge gains this year, we haven't seen that same love shown to the small caps, as they've been in a major consolidation period for the past two months. With last week's bullish-engulfing weekly candle, it appears the index may be ready to break higher closing just below its major $159 area resistance.

We have a Federal Reserve meeting Wednesday and the market wants to see the Fed continue with its dovish outlook and leave interest rates unchanged throughout the rest of the year. We saw first quarter GDP soar at 3.2% crushing the 2.3% estimates, but that number could largely be due to the lack of Chinese imports, and inflating the number for the short term. We won't be able to see whether that's true or not until the end of Q2.  

The IPO market has been going insane the past few months which, in the past, has signaled the end of a huge market run with where we're at in the cycle. Companies want to pump them out with the market at highs in a 'risk-on' environment to increase the probability of a successful IPO. Something to keep in the back of your mind. In the meantime, they can be amazing trading vehicles for our time frame so we will continue to keep a close eye on these names. Great call by Carl in PD Friday, we need more eyes on these fast movers. LYFT has been an utter disaster and UBER just filed to go public in the next week or two, so that will be the big story, but there are a bunch of other IPO winners that haven't been as talked about. 

(ZM, PINS, PD, JMIA, TIGR, TPTX to name a few)

Slated for another HUGE week of earnings with 984 public companies reporting. Yes you read that number right, 984. For this reason I want to focus more on the companies that have already reported, that have given us the earnings gap up + sideways movement we love. The highest probability setups out there are the stocks that gap up on earnings, flag out a few days and take out that earnings day high.

The best ones don't wait around, as we can see in something like JPM that took out that earnings day high just 3 days after the gap up. The other factor in this trade that must be taken into account is that JPM was only up 5% after that earnings day high, which passes the eye test. If a stock is up 50% overnight, that stock will need weeks of flagging before investors are willing to pay the higher prices. We want the 8sma still in the vicinity of where the stock's trading to prove the stock isn't *too* overbought.

If you're buying a day 1 earnings name that just reported this morning or last night, it's imperative you pay for the trade and take some profit day 1 as this stock hasn't proved investors are continuously willing to pay these higher prices. A great example of this is DPZ earnings - huge gap up and Heaven bought some, paid for the trade into the 300-302 pop, and then later the trade failed and he was breakeven or slightly green instead of taking an L. You can hold the entirety of your position if it's a well built out earnings flag. Those are 2 very different trades and should be treated as such. Much higher probability in the ones that have flagged out on the daily chart versus the first day buying. But, if buying day 1 you could catch the best ones and have a great price, and the best ones never come back. There's 2 sides to every coin.

Me going through charts this week now that there are earnings names to trade.....

BPOP Long

My oh my is this BPOP a lovely technical setup. Third time going after a major macro resistance level after making an incredibly tight daily flag a few days after releasing earnings. This one looks to go through 57.50.

Trigger: $57.50

Stop: $55.89

Target: $65+

Hope to see you in the chat Monday! 

Two watchlists this week - my normal weekly watchlist plus my much larger Q2 2019 Earnings watchlist that I will continue to build throughout the earnings season.