Earnings-Day Price Action A Guide To Future Price Action

Earnings day is a major catalyst that can make or break a stock. Most often, post-earnings moves have significance for future price action, and therefore it is worth the effort to closely track the price action following the earnings release.

Social networking giant Facebook Inc FB reported after the market close on July 28 forecast-beating results. The stock gained roughly 3 percent on July 29 to a record closing high of $170.44. Augmenting its gains, the stock closed at a fresh record of $172.45 on July 31.

However, since then, the stock has cooled off a bit and have never got around to retest its post-earnings closing highs.

Meanwhile, generic pharma company Teva Pharmaceutical Industries Ltd (ADR) TEVA's second-quarter results released Aug. 3 and a batch of bad tidings that came along with the report sent its stock crashing by 24 percent to $23.63.

The next session, the stock took out the intra-day low of $23.33 hit on earnings day and settled at $20.49.

From there, the stock continued to head southward and was last seen trading at a 15-year low of $15.72.

What elicited the sharp reaction was the below-consensus top and bottom line, downward adjustment of the guidance and a dividend cut.

Jewelry retailer Tiffany & Co. TIF reported above-consensus second-quarter earnings per share, with strength in Japan propping up the bottom line.

The stock gap-opened up by $3.94 on Aug. 24 and rose to a high of $92.50 but ended the session down 1.32 percent at $87.55. The intra-day low of $86.31 (Aug. 24) would serve as a reference point, which might help in a long trade.

The post-earnings reaction is due to the fact that some big players focusing on fundamentals adjust their models from the data and information gleaned out of the earnings reports and the management commentary on the earnings call. Based on their analysis, they execute large-sized sell or buy orders.

See also: Ulta Beauty: Ugly Chart Ahead Of Q2 Report

Meanwhile, Ulta Beauty Inc ULTA, which reported after the bell on Aug. 24, did manage to beat earnings and sales expectations but comp growth slowed down. Ulta shares continued to put up an ugly showing, settling the session on Aug. 25 down about 9 percent at $212.36.

Source: Y Charts

In Monday's session, Ulta Beauty stock breached last Friday's intra-day low of $208.25, moving to a low of $207 in the process. If the stock crosses this level to the downside, the next stop could be at $202.28, equaling a low hit during May 2016.

However, a close above the $208.25 level could signal bullishness and in the eventuality, one can trade the upside, setting a stop loss at Monday's low.

Joel Elconin contributed to this article
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Posted In: EarningsNewsTechnicalsMoversTrading Ideas
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