TSLA Kicks off Earnings Reports for the Magnificent Seven This Week

Tom Gentile

Posted in

By: Tom Gentile
May 1st, 2024

7 mins read

Originally published via our newsletter previously. Subscribe for early access!

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Earnings has been under way prior to this week, but one batch of stocks are usually the more anticipated as they are the group of stocks that many attribute to the primary reason for the gains we have seen in the overall markets – the Magnificent Seven.

Here is the list of stock and their respective earnings dates

Tesla (TSLA): Reported today and beat expectations

Meta Platforms (META): Announces today After Market Close (AMC)

Alphabet Inc. (GOOGL): Announces tomorrow AMC

Microsoft, Corp. (MSFT): Announces tomorrow AMC

Amazon.com, Inc. (AMZN): Announces April 30 AMC

Apple, Inc. (AAPL): Announces May 2 AMC

Nvidia Corp. (NVDA): Announces May 22 AMC

Unless we are trading these for a pop or drop (Straddle or Strangle) at their earnings, we tend to wait until after the company reports before considering an options trade on it.

Market in Focus: SPY – SPDR S&P 500 ETF Trust

The last couple of trading days prior to today propped up in price.  Tack on today’s price action where US equities, as analyzed using the SPY, and we have a had a 3-trading day ‘bounce’. SPY traded down on the day, but is holding at or near the close of yesterday.

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Keep in mind we still have the rest of the Mag 7 stocks to announce earnings as well as many others.

We have Fed news and decision to cut or not next week, (I am leaning on NOT expecting a cut, nor do I see the markets expecting one.

But we have to pay attention to what Fed Chair says about what they see in the economic data and if he intimates if and when a cut is to come… are we going to hear rates hgiher for longer again?  If so how to investors react?

From the Desk of a CMT – Staying Objective

Know Yourself

I’ve served in analysis and strategy roles at different companies for many years. Not solely investment/trading strategies, but corporate analysis and strategy too. In the last decade I came to understand that not everyone is persistently looking out in time and contemplating moves to accomplish a specific goal. 

It was probably only the decade before I came to appreciate the challenges an analyst faces when you spend time assessing a stock/ETF/market, drawing a conclusion, then needing to quickly jump away from your conclusion because new data just arrived. 

These two attributes, looking out too much and categorizing a trend are why I continue to harp on two subjects in these articles, “what is” for the markets and objective tools. 

What is for the markets: stop looking out and manage what’s happening now.

Objective tools: the market will do what the market will do, don’t have a rigid, prescribed framework you think it should follow.

These two things have gotten me to focus more in recent years on keeping it simple and identifying conditions that point to a change in a stock/ETF/market that is counter to my position. As an example, when price moves below a recent low for a day or two, it may be a signal to get out. The actual exit rules vary, but having a specific thing that lets me know I need to take action is critically important.

I suspect these two things resonate with many traders and there are many analytical types in the markets. Is there anything else you know about yourself to create a hack for your trading? 

Are you impatient or too patient with positions? 

Maybe use objective tools on your preferred timeframe in addition to a level higher up (if impatient) or shorter (if too patient).

Do the moves in the underlying make you uncomfortable?

Look at your history to see if you’ve been more successful with less volatile stocks, then seek those out.

You get the drift, trade to your style. There are great traders who shared their systems but if your style isn’t suited for them, you’re going to struggle. Either find the systems that suit your style or the hacks you need to get comfortable with something a little outside your normal mode.

Back to the ADX

Although the construction of the +DI, -DI, and ADX is pretty complex, the application can be pretty simple. 

What is for the ETF? When the ADX is rising and above 20, this objective tool says it’s trending. Maybe this is a checklist item to add before entering a trend strategy.

Want to add some +/-DI consideration the mix? What if you were to also require +DI > -DI for a bullish trend? Will this help your strategy selection using objective tools? Hopefully. Maybe you prefer an MA checklist (where price and different MA’s are relative to each other. Don’t be exhaustive in your requirements but do set yourself up for success.

ADX ActionStrengthMarket
Rising line below 20Very WeakTrending
Rising line moving up above 20StrengtheningTrending
Rising line moving up above 40Very StrongTrending
Divergent line falling below 40*WeakeningTrending
Falling line below 40n/a“Trendless” Sideways
Falling line below 20n/a“Trendless” Sideways
*Because a rising ADX signals a trending period, either upward or downward, a divergent ADX line is one that is falling while price is rising or falling when price is declining. 

Looking at the SPY and 11 sector ETF’s, which ones are trending (ADX above 20 and rising) and what is the trend for each (is it bullish with +DI>-DI or bearish with -DI>+DI)?

Here’s the list of stocks I reviewed in Profit Source:

SPY & Sector Stock List
Figure 1: SPY & Sector Stock List

The only three trending ETFs were SPY, XLRE, and XLV. In each case, -DI was above +DI, and for XLRE and XLV, the 20-day and 50-day SMAs were trending downward confirming the bearish trend read.

How would you proceed from here? Figures 2 & 3 provide the daily charts for XLRE and XLV to help you formulate a strategy. Both charts include Rate of Change (ROC), a nice basic momentum tool using the default setting of 14. 

If using options, assess implied volatility (IV) conditions too. 

Based on the two charts, do you prefer one over the other and why?

XLRE with EMAs (20, 50, & 200), ADX with +DI, -DI (14, 20), and ROC (14, 7)
Figure 2: XLRE with EMAs (20, 50, & 200), ADX with +DI, -DI (14, 20), and ROC (14, 7)
XLV with EMAs (20, 50, & 200), ADX with +DI, -DI (14, 20), and ROC (14, 7)
Figure 3: XLV with EMAs (20, 50, & 200), ADX with +DI, -DI (14, 20), and ROC (14, 7)

Does How You Get In = How you Get Out?

The answer for me is definitely no. I’ve had to simplify my exits to manage risks first, then work on improving exits for gain. 

I’ll follow-up next week with a specific case study that may need to look back. I expect conditions to be different for some of the charts provided in the sector list after GDP is reported, which is fine.

With a preference for the XLV chart, I’d want to see if 20-day SMA serves as resistancebefore entering a bearish strategy. The 50-day SMA as resistance would do as well.

To map things out a little more under the heading of “my preferences,” a multi-contract position would also allow some potential profit-taking around the 200-day SMA. 

This article is more about things to consider using the ADX, but regardless of your tools, a critically important part of the process is to identify specific things that will tell you to exit the position.

  • Risk management: a target max risk and specific price you can identify when formalizing your strategy
  • Timed exit: a specific date for option traders, determined by being long or short premium 
  • Price: what specific price tells you the trend is no longer valid

More next week, until then play to your strengths and find hacks for your shortfalls as they relate to the market.

Clare White, CMT

Appreciate you, Clare

Tom Gentile
C1P: Chief 1-Percenter


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