One of the many great things about earnings season are the possibility of shockers in a sector that causes a bit of a ripple effect. Last night LULU came out and greatly disappointed, resulting in a crushing drop overnight:
While I sat and watched how this played out, I started scanning my “go to” retail names. Finding a few names in each sector that you are comfortable trading and that typically produce decent momentum with solid liquidity can be fantastic plays when situations like this set up. Upon scanning, I zeroed in on NKE, based on its potential perfect set up on the daily if it opened weak. NKE had its on struggle with earnings this season as seen in the gap down it had on 3/22. While it had filled the gap, it was 5 days green into the gap and had a weak candle on 3/29.
I was watching it during pre-market to see how it was acting, and when it opened .10 lower than yesterday’s close, I pounced on it, taking it short with the stop over the prior days high and a focus to add size on any basing or upon trend confirmation and retracement to a downward tracking VWAP. My stop was moved to over the high of today pretty quickly when I added into the first wash.
Really happy with this as I truly caught the meat of move today, nearly .70 drop with some decent size to begin with and some awesome adds.
With LULU’s huge move, aside from thinking about a potential bounce within LULU itself, I knew I wanted something that would produce less stress and this was perfect.
Finding at least 2-3 stocks within the sectors you like to trade is key for capitalizing on earnings results outside of the stock itself….particularly when the stock has a move like LULU.