Earnings Whipsaws Drive Volatility (TRIP & MNST Preview)
This is a jam-packed week in earnings.
There are 154 companies in the S&P 500, over 30%, set to report in the next five days.
If you thought last week’s whipsaws were interesting, they are not over yet.
One thing is for certain: The markets are responding strongly to moves in earnings. It started with Netflix Inc. (Nasdaq: NFLX) two weeks ago — a blue-chip stock falling 40% on earnings. Last week, a major mover was Teladoc Health Inc. (NYSE: TDOC), which also fell 40%.
And then there’s the bellwether companies that get everyone’s attention, like Microsoft Corp.’s (Nasdaq: MSFT) strong report or Amazon.com Inc.’s (Nasdaq: AMZN) and Apple Inc.’s (Nasdaq: AAPL) weak reports. The market continues to shift each day on major news.
With 154 of the biggest and most liquid companies reporting this week, you can expect more of the same — a choppy market.
This week, with all the chop and big moves we are seeing out of the blue, I’m focusing more on what to expect next.
These stocks are on a shortlist I track with a unique earnings boost strategy I trade. I’m looking for two things to occur:
- I want to see these companies beat expectations by at least 5%.
- I’m looking for the stocks to jump at least 5% on the move.
If that happens, it gives us a strong indication that shares are going to continue higher over the next four weeks.
It’s a basic approach that many tend to ignore. But a big single-day move on earnings is often a sign of more gains on the way.
And that’s particularly true with these two.
Let’s take a look…
Earnings Edge Recap
The Earnings Edge stocks last week were trending right along with this chop in the market for the most part.
Matador Resources Co. (NYSE: MTDR) fell on earnings, breaking down lower from its rising price trend.
But it could end up trading similar to Lantheus Holdings Inc. (Nasdaq: LNTH). Shares were heading lower after the markets declined earlier in the week, but earnings last Friday caused the stock to pop over 5%. That brought shares right back in the trading range I highlighted last week and could signal more gains ahead.
Earnings Edge Stock No. 1: TripAdvisor Inc. (Nasdaq: TRIP)
Earnings Announcement Date: Wednesday, after the close.
Expectations: Earnings at a loss of $0.08 per share. Revenue at $248 million.
Average Analyst Rating: Hold.
I’ve tracked TripAdvisor since it went public in 2011. It’s prone to some wild double-digit moves on the day of earnings.
And I’ve found more consistent profits by waiting until after the announcement and jumping in. But only if it hits my earnings boost signal.
Over the past decade, the online travel company’s stock has hit my earnings boost signal five times. And on all but one occasion, the stock continued higher.
That gives this signal an 80% win rate over the last decade.
TRIP’s Tight Trading Range
You can see the stock is consolidating a bit ahead of earnings. The falling resistance in red and sideways support in green are closing in.
I cut through the short-lived dip in March with its green support line. But keeping the line there only puts pressure on the stock to go lower.
Earnings tend to be trend changes, and TRIP is already on the verge of breaking out to the upside.
I’ll be watching the stock this week, looking for my earnings signal of a 5% or better beat and a 5% or greater price move. Then I know to jump in and buy calls.
Earnings Edge Stock No. 2: Monster Beverage Corp. (Nasdaq: MNST)
Earnings Announcement Date: Thursday, after the close.
Expectations: Earnings at $0.61 per share. Revenue at $1.42 billion.
Average Analyst Rating: Outperform.
Monster Beverage, the energy drink giant, has hit my earnings boost signal 12 times since 2006. It rose 70% of the time after that signal.
You won’t find that type of consistency before a report, no matter what you track.
But, by looking for a 5% or better jump in the stock and a greater than 5% earnings beat, you’ve got exactly that.
This stock has been on a choppy sideways move for over a year now. Take a look.
MNST’s Choppy Pattern
Shares are barely above where they were in late 2020, and that’s only thanks to a rally off the March lows.
Based on my “Profit Radar” tool, the relative rotation graph, the stock has completed the move higher. Shares are sitting in the leading quadrant on the chart, indicated by the green candlesticks.
The next likely move is lower for MNST, and earnings could jump-start that this week.
I won’t be gambling on the big day itself.
Instead I’ll patiently wait to see if it can surprise the market with an earnings beat and send the stock higher from there.
If we get that, I’ll turn bullish on the stock.
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Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.