in today’s video we are going to talk
about how professional traders evaluate
and place trades based on fresh news
catalysts so stick around
[Music] I’m Stephen Spencer a co-founder of SMB
Capital a prop trading firm in New York
City where we trade stocks futures and
options in today’s video I will walk you
through two recent examples of large cap
stocks that reported earnings and how we
prepare it to trade them this video was
inspired by a recent question in the
comments section on one of our youtube
videos so I encourage you to ask
questions and share trading insights in
the comments section below our videos we
all will learn more together here are
the game plan notes from our am meeting
the first stop we are going to talk
about is a DB Adobe in the game play
notes I usually offer a few levels of
interest that our potential support or
resistance and I will also provide one
or two highlights that caught my
attention from their earnings release in
the case of Adobe what caught my
attention was the 25 percent
year-over-year growth in subscription
revenue that’s a strong number for a
large cap stock it is not unusual to see
20% plus growth and smaller companies by
and large larger companies will have
much lower growth rates usually below
10% but a strong year-over-year growth
rate alone is not enough to give me a
bullish bias on a stock I want to
understand on the higher time frame how
it is traded prior to the earnings
release so the first thing I do is
scroll back to a year ago to see where
it was traded I can compare how much the
stock has gone up in the last year
versus growth rate to make an informed
judgment whether large market players
would be more likely to buy or sell the
shares then I’ll zoom in on a 30-minute
multi week chart to see how people are
positions coming into the earnings
released for example I have a bullish
bias on a stock and it is sold off hard
prior to the earnings release I would
view that as another check in my fever
has many people who sold will likely
have sellers remorse and chase the stock
as it moves higher following the
earnings release as you can see in this
daily chart Adobe was only up about 12%
from last fall’s high and therefore it
makes sense based on strong year over
year growth that it would be trading
higher one of the things
that I mentioned in our a meeting while
we discussed the dhobi is that if a
stock is behaving in line with how my
analysis indicated it should be trading
there will be good risk or trades but
nothing great in the case of Adobe it is
acting in a way that I would expect
based on strong year-over-year growth
and the gap higher so there will likely
be a good opportunity to treat it but
only what I would consider a normal risk
award and nothing earth-shattering as
you can see it from the zoomed in
five-minute chart
Adobe traded up to 317 after the market
closed and reported earnings the next
morning it’s trading above 312 in the
pre market which you can see on the
right side of the chart which was above
the pullback low in the after-hours so
from a purely price action standpoint we
would consider this moderately bullish
if we look at the game plan notes you
can see I’ve highlighted a few potential
support areas and only a single
resistance area which was the
after-hours high when stocks are at
their all-time high there are no
resistance areas other than where the
stock trades after the catalyst
initially in the after-hours my
expectation based on the higher time
frame chart we reviewed in the size of
the positive catalyst and additionally a
ton of upgrades that we saw worst case
scenario is the stock seems to see some
profit taking right on the open it so
creed’s down a few dollars possibly to
s2 but more likely it will trade only to
ask one and then make move higher
through the after-hours high of 317 we
discuss a few of the possible trading
patterns during the am meeting we do
this very quickly as we need to discuss
four to six stocks in about 15 minutes
the process that we use to identify
these stocks he’s part of the two-hour
free workshop I spent 30 minutes on
stock selection and we also discuss in
detail two of the lowest risk high
reward setups that we teach on our
trading desk so if you have not watched
the free workshop yet I highly recommend
you check it out now by clicking on the
link above or the link below the second
stock we’re gonna analyze is Costco cos
T this is another large cap company with
strong growth so I’ll go through the
same process as we did with Adobe
identify the key support resistance
levels based on recent price action
develop a bias based on the higher
frame versus the size of the catalyst
that we see if we look at the daily
chart for cost we can see that on a
percentage basis it has gone up a lot
more than Adobe in the past year it’s
moved up from 240 to 300 which is about
a 25% move when we look at the morning
game plan notes we can see that even
though it has strong sales and earnings
growth they don’t look nearly as
impressive as size of the move that we
saw in the past year and this is why I’m
interested in being short the stock it’s
gone up 25 percent in the past year but
we can see sales growth 5% earnings per
share growth 10 percent from a bigger
picture perspective this is a stock in a
strong uptrend and on the surface the
numbers look good so my hope is with the
stock opening lower some people will
initially buy it and it will spike up
into an area to our resistance area from
the morning gameplay notes and that it
will offer us the best most favorable
risk reward entry for the stock and if
not then I’ll go to plan B in short at
lower prices I want to take a quick look
at the multi month 30-minute chart to
highlight a couple of points cost has
failed a few times you can see on the
chart above 300 since September and in
the two weeks prior to earnings the
stock was bought in the 293 294 area
where it’s supported in late October and
early November
this chart shows pretty clearly the plan
B area to short the stock if we don’t
get it on our resistance areas right on
the open so if it trades down not as
resistance we’ll go to plan B so you can
see from the zoomed in chart here that
the first move was down quickly it
flushed through s1 and then even s2 the
cost the first move is down it is very
low probability I’ll have a chance to
short it on my resistance area so I go
to plan B which is to short it as it
approached the earnings reaction low
from yesterday’s after-hours trading we
can see that right there on the chart
it’s around 294 and so as it pops up
into that that area I get short so
you’re always gonna have a plan B and
usually a plan C stocks may go in the
direction that your bias indicates
they’re going to go but the path quite
often will not be the most likely path
but will be
several that you’ve outlined in your
detailed game plan before the market
opens as I said here we have to go to
plan B I want to give you an example of
a stock with a negative catalyst that
had a quick pop in the open where we
actually were able to trade it into our
resistance area here’s the chart of HD
it popped right on the open into 232 and
we got short so we were able to short it
on that quick pop right on the open most
traders would view that as a riskier
entry because we entered a position
against the short-term momentum but for
experienced traders who understand the
catalyst as well as the key prices
entering against the momentum with a
plan is a very effective strategy but
regardless we need to prepare for many
possible price paths with their stocks
we’re going to treat so to recap for you
we identify the strongest points in an
earnings release we highlight them the
points that analysts and large fund
managers will likely be focused on then
we’ll look at a daily chart to judge the
longer-term price action against the
details of the catalyst and finally
we’ll look to see how traders and
investors have positioned themselves in
the weeks prior to the catalyst release
all of these things combined give us a
edge as discretionary traders