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PreMarket Prep: A Few Dogs Are Barking, Fading A Herd Of Grubhub Analysts

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PreMarket Prep: A Few Dogs Are Barking, Fading A Herd Of Grubhub Analysts

Wednesday's PreMarket Prep Show featured two excellent guests, Greg Weldon of Weldon Financial and Larry McDonald of The Bear Traps Report, who provided insightful commentary into the future course of interest rates, emerging markets and commodities.

The price action from earnings reports were covered. Also, the ACP (Analysts Chase Price) theory, made up by the hosts of the show, was revisited.

Best Example Of Analysts Chasing Price Ever?

Often on the show, we talk about our ACB Theory, which simply means Wall Street analysts are often late to take action on issues after exaggerated moves.

For example, after an issue has a great earnings report and races higher, analysts will upgrade and raise their targets on the issue the following day. On the other hand, when an issue craters on a poor report or guidance, they will downgrade the issue or lower the price target. Sometimes the actions of several on the same day can be a powerful contrarian indicator.

Grubhub (NYSE: GRUB) was slaughtered after its disastrous third-quarter report and 11 different analysts downgraded and lowered price targets.

The co-hosts were willing to fade the "late to the party" call and were hoping the issue would test $30 off the open for a lower-risk long entry. However, we weren't the only contrarians out there as the issue bottomed just below Tuesday's low ($32.55) at $32.11 and rebounded as high as $36.76.

General Electric Surprises With Q3 Beat

As of late, many of the dogs of Wall Street have been barking and there's no bigger canine in the U.S. markets than General Electric (NYSE: GE). A serial underperformer in the greatest bull market of all time, this issue has continuously disappointed investors when earnings are released.

However, the company delivered an EPS beat along with a nearly $400 million sales beat. Since the issue was already firmly in the green in pre-market trading, the hosts of the show weren't inclined to chase it higher, which would have been the correct move.

A survey of the NYSE open book revealed huge institutional sellers at $10.00 that may stem the rally. That didn't turn out to be the case as massive short covering scooped it up and traded to $10.37, but drifted back towards the $10 area.

Mattel: Another Dog Barks

Mattel (NYSE: MAT) announced an EPS beat along with a slight sales beat. When being discussed on the show, it was hovering at the $13.00 area. Once again, chasing the issue on the long side was discouraged. Instead, a gap fill from Aug. 8 at $12.97 was identified as a formidable resistance level to exit a long or perhaps initiate a short.

Off the open, it cleared that level, but the rally stalled shorty after at $13.22 and is now trading in the lower $12.00 handle.

2 Guests On Thursday's Show

At 8:15 a.m. EST, Marc Chaikin of Chaikin Analytics will join the show with updates on his Money Flow Indicator and share his fundamental outlook on the market.

Be sure to tune in at 8:35 a.m. EST, when Michael Olson, managing director and senior research analyst at Piper Jaffray will critique Apple's report and comment on other issues in his coverage area.

Posted-In: PreMarket PrepLong Ideas Short Ideas Trading Ideas Best of Benzinga

 

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