Hey trader,
Two retail stocks reported earnings this morning.
One beat estimates, raised guidance, and crashed.
The other had been beaten down for months. It rallied on a modest beat.
Most traders would have been on the wrong side of both. I was positioned correctly because I use a framework that identifies which stocks have already priced in their news.
Once you understand this framework, you will know before the market opens whether a stock is a trap or an opportunity.
The Genesis COG Scanner detects the hidden algorithmic pressure behind these moves before they hit the tape.
It shows you when a stock has already priced in good or bad news before the report hits.
The Setup: How to Read the Signals Before the Print
When a stock sits at all-time highs heading into earnings, the good news is already in the price. The report becomes a sell-the-fact event.
When a stock has already been crushed, the bad news is in the price. The report becomes a buy-the-fact event.
I have lost enough money in my career to learn this the hard way. This pattern repeats every single earnings season.
Dollar General came out this morning. They blew away estimates and raised guidance.
The stock crashed. It did not even matter what they reported.
The MACD was already parabolic down heading into the print. That told you the algorithms were positioned for a sell-the-fact reaction.
Here is what the setup looked like:
- Dollar General was at all-time highs with elevated expectations. Every penny of good news was already baked into the price over prior weeks.
- The weekly momentum was rolling over before the report hit. If momentum is declining at all-time highs heading into earnings, the market has already absorbed the good news.
- Raising guidance did not save it. When expectations are that high, even beating the number triggers selling because there is nobody left to buy.
Now compare that to Dick's Sporting Goods. The stock had gone from a $250 handle down to a $180 handle.
You would think discretionary retail would get destroyed in this economy. Dick's reported $4.05 against a $3.59 estimate and rallied because the bad news had already been discounted.
The expectations were lower. The downside was mitigated before the report ever landed.
The Execution: What I Did and Why
I bought Dick's Sporting Goods near those lows. The downside was limited and the math was screaming at me.
Here is the framework I use every earnings season:
- If the stock is at all-time highs heading into earnings, sell it or hedge it. I told my audience that if you were my money manager and held through that setup, you are fired. You made me 50 percent. Take the money and run.
- If the stock is at 52-week lows with bad news already priced in, step in. Even a modest beat sends it higher because the sellers have already exhausted themselves.
- Check the MACD slope heading into the report. If momentum is declining at all-time highs, the algorithms are positioned to sell the fact. If momentum is stabilizing at the lows, the worst is behind the stock.
I carry 55% cash right now. I am not buying dips in this market.
But when the expectations math lines up, I step in with conviction.
The Genesis COG System identifies when momentum and valuation create these asymmetric earnings setups. It separates the traps from the opportunities before the numbers ever drop.
Professor Jeffrey Bierman
Creator of the Genesis COG System