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When the Market is Choppy Search for the Best of the Best

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The S&P hit its all time high of 2872 on January 26, less than 4 months. ago. Two weeks later, on February 9, it touched 2532, having fallen almost 12% before recovering some. But since then the bulls have struggled to make progress with the S&P pretty much at the same level it was in early February. Though the VIX, which hit 50 on February 6, has since pulled back into the 13's, volatility has kept traders on their collective toes, which has made stock selection when trading more important than ever.

Though the S&P remains 5.5% below the February high it's still over 7% above the February low. And one of the major reasons it's held up is earnings, which have been quite strong. I point this out to highlight the fact that there are plenty of stocks that could present high reward to risk opportunities, irrespective of the ongoing volatility, especially those companies that beat or miss earnings expectations.   

As an example Five9 (FIVN) is a company that recently reported earnings and beat both top and bottom line expectations. As a result the company spiked almost 14%, hitting its all time high, showing that traders will reward those companies that beat expectations no matter the overall market environment. In fact, once the initial euphoria wore off, we issued a trade alert to our members on  the stock on May 15 when it had pulled back to a key support level. It then resumed its march higher, producing a 7% gain in just a few trading days.

While the market is happy to reward those companies that beat earnings expectations it's equally willing to punish those companies that miss expectations. As an example, Taiwan Semiconductor (TSM) is a company that recently reported and missed its earnings per share and proceeded to move lower when it finally bounced. But as you can see in the chart below the stock ran into resistance right on cue at its 200 day moving average, making it a short candidate as it proceeded to fall over 5.5% as traders remembered its poor earnings showing.

The two examples above show that there are both long and short trading opportunities in the current market environment. Traders gravitate to those companies that show earnings strength while avoiding those that come up short which makes total sense. In fact we track companies that beat/miss earnings expectations and those with strong/weak charts are added to our Chart List, some that become long/short trading candidates. If you want to see a sample of the list just click here.

The market has been quite volatile for the past 3-4 months which has kept traders on their toes. If you can zero in on those companies that beat or miss earnings expectations it will present you with some high reward to risk trading opportunities.

At your service,

John Hopkins
EarningsBeats 

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About the author: is the founder and President of EarningsBeats.com, and has been active in the stock market for over 30 years. He previously co-founded and ran Invested Central for over 10 years, and hosted a national radio show, "Market Open Live". John and his team at Earnings Beats look for companies that beat earnings estimates and have strong technical charts. He is a featured contributor to the ChartWatchers Newsletter at StockCharts.com.
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