This is a quick post demonstrating two stocks recovering from post-earnings losses, that is, filling post-earnings gaps down.
Netflix (NFLX) surged 7% on Friday on strong buying volume, smashing through resistance at the 200-day moving average (DMA), and filling a gap created from post-earnings disappointment (see earnings call transcript here). Not wishing to press my luck further, I sold my calls right before trading closed. NFLX was an interesting play because it has a strong overall stock chart and the headline earnings suggested the company continues to perform just fine. Here are the factors I considered:
- Prevailing uptrend
- Recent all-time highs
- Earnings guidance in-line, meaning selling likely due to overly aggressive expectations going into earnings
- Increased subscriber guidance – a great positive on a closely watched metric for the company
The weekly chart shows how strong buying volume has generally dominated NFLX’s trading action – the week of the last earnings announcement is a notable exception. A short interest of 25% of float has likely helped push the stock ever upward as the company continues to perform for now.
Akamai (AKAM) is a stock I have followed closely ever since insiders loaded up on the stock from July 31 to August 3, 2009 for under $17/share. This buying came directly after the market responded to earnings announced the evening of July 29 (see earnings call transcript here) by sending the stock back to its March, 2009 lows (52-week lows were set November, 2008 below $10/share). I was good enough to follow directly in their footsteps, but not smart enough to hold into 2010 when AKAM’s fortunes completely reversed with three-year highs and a complete recovery from post-recession selling.
On July 28, AKAM guided earnings and revenues in-line with consensus and was rewarded with a substantial loss the next day around 13%. The configuration here is almost the same as NFLX, absent the recent all-time highs. The progress toward the gap fill has also taken time before negative momentum ceased.
As a reminder these bullish post-earnings plays accompany on-going put positions on major indices. These puts will remain in place until the S&P 500 conquers its June highs; the index churned all of last week without getting the extra push over this “last” bearish technical barrier. In the meantime, numerous individual stocks continue to recoup post-earnings losses (click here for a small sample from late July).
Be careful out there.