![]() We’ll see if TWLO and CHGG follow the usual pattern. Interpretation: These types of big gaps out of big bases often launch big moves and can be bought right away-and after their first pullback. (For another recent example, look at Chegg (CHGG), which had a similar big base and huge earnings move.) Then the roof blew clean off after earnings, with the stock rallying a whopping 40% the day after earnings on trading volume that was more than eight times average.Īgain, such a big move seems like it would lead to a sharp pullback, but usually (not always!) it’s more of a blastoff signal. That’s the script that TWLO followed, with a top near 150 in June of last year, two big declines (one to 90 last October, then to 68 during this year’s crash) before bouncing back to 110 or so two weeks ago. And then, usually with the stock in the middle to upper portions of that big consolidation, comes a massive earnings gap that takes the stock to new highs. When I say “big base” I’m usually talking about a stock that’s consolidated for at least a few months if not much longer, with lots of ups and downs (including a big shakeout or two) that wore down and scared out the weak hands. So today I thought I’d go over a handful of stocks that have gapped this earnings season from different positions on their charts and share my thoughts.Įarnings Gap #1: Big Base, Gap to New Highs – Twilio (TWLO) However, investing is never easy, and just buying a stock that gaps up 20% isn’t guaranteed to make you money-you still have to keep in mind the stock’s overall action and the market environment. Of course, few investors will go ahead and buy a stock that gaps up 20%, 30% or more because it looks “too high”-but the bigger the gap, the better the chance a stock can continue higher, assuming it has a solid growth story.Īnd the good news is that, last week, I saw as many powerful earnings gaps among growth stocks as I have in years! All else equal, that bodes well looking down the road. When a stock gaps up powerfully, it often portends further solid gains in the weeks and possibly months ahead. ![]() And it turns out these earnings gaps often send powerful signals for the intermediate-term … but not in how most expect. ![]() ![]() Because the market is basically human nature on display, it’s often filled with shakeouts, dips and contrary behavior that keep most people off balance.Īt no time is that seen more than during earnings season, when, thanks to Regulation FD (instituted back in the early 2000s), we typically see a ton of growth stocks gapping up or down based on their quarterly reports and guidance. One of the market maxims we definitely subscribe to is that the market fools the majority of investors the majority of the time. But the gaps don’t always mean the same thing for the stocks involved. A sudden glut of recent earnings gaps is a bullish sign for the market. ![]()
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