One of my favorite trading scenarios is when a stock trading gift is placed in my lap. This rare trading opportunity for investors occurs when a stock is trading near its recent lows, announces great earnings, pops and then slowly retraces to the level of support prior to the news. This gives investors an opportunity to enter the stock at the pre-good-news level but already knowing the good news. Essentially it is like having a crystal ball and knowing the good news but getting in first.
This favorite trading scenario can occur with a stock trading at recent highs. It can fall sharply on earnings, then slowly grind back up to where it was prior to the nasty news. This recently happened with Advanced Micro Devices (AMD). It reported a nasty quarterly report, the stock fell from over $52 to $46 on the back of missing guidance. However, due to the market bullishness, it has since climbed back and made even higher highs.
This is where as a swing trader I get excited. Essentially, you know that their numbers will not be great, but due to irrational exuberance we get a chance to short it at an even higher level than it was before the negative earnings report. Cha-ching!
The same rare trading opportunity for investors is playing out with Kraft Heinz Company (KHC). The stock surged on positive earnings and hopes of a turnaround in the company. Kraft Heinz jumped from $29 to $34 on the positive news but has since slowly consolidated back down, hitting $29 just a few days away. This is a jackpot scenario for swing traders like myself.
While this method does not work out 100% of the time, it puts the investor and swing trader in a high percentage win trade.
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