Here's my trading strategy for earnings season

Jea Yu has been involved with the equities markets for over 10-years. He specializes with intraday trading in the U.S. equities and futures markets. To receive a free 7 day trial to Jea Yu's Underground Trading Pit, click here or call 888.484.8220 ext. 1.

Earnings season finally is under way. This is the most voluminous and momentous period of the year and its comes four times. It is my favorite season and is like having four Christmas’ a year. Gappers are stocks that gap up more than 10/20% and vice versa on dumpers which gap down more than 10/20%. The bigger the percentage of the gap the more juicy it is to play. This morning we played (TZOO | Quote | Chart | News | PowerRating) gapper. TZOO gapped up about over 6 points (+30%) on blowout earnings.

With gappers, we wait out the first opening minutes to let things settle. TZOO held the opening gap well which dragged up the 3 minute simple moving average off the open. When the 3 minute 5 period moving average rose to 27.40, that gave us a downside risk of only .20 when we took the LONG entry at 27.60 at 9:42am. The stochastics lead %d indicator sloped up triggering the 3 minute mini pup formation for new highs and gap fills. TZOO squeezed up through 28.10, through 28.40 which were profit pare out levels. We finally LOCKED the gains as the 1 minute stochastics peaked 100 bands at 28.75 overshoots, out + 1.15.



The rule for playing earnings gapers is to WAIT out the first 10 minutes for the 3 minute 5 period moving average to close in. The 3 minute 5 period moving average will either hold a support and coil the stochastics back up for a PUP long or will break and form a stochastics cross down for a channel tightening short. This is the main bread and butter play in earnings season.

I will review the earnings gap down plays on future dumpers that we play. Christmas is here, pace yourself and enjoy!

Jea Yu