When it comes to trading, I always try to trade “around” earnings. Meaning that if I’m entering a new position, I want to make sure that I’m not running up against an earnings date in the near future. Holding stocks (or even worse, options) through earnings is a very dangerous game, and at times, comparable to gambling.
Without any inside knowledge (which if I had, would be illegal), I don’t know which way a stock is going to go after earnings. That’s what makes trying to trade through earnings (via naked positions) such a risky affair. A perfectly good uptrend could get derailed in an instant, or it could explode even higher.
For that reason, I try to avoid earnings altogether.
But that doesn’t mean that I don’t look for trades after earnings have been released.
Because some stocks, for whatever reason, love to “pop” post-earnings. Once they get nudged in one direction, they’ll take off like a rocket in the week following earnings as investors pile-in (or out) of a particular company.
Usually, that involves a price surge up to (or down to) a level of resistance (or support). Once that key price level is broken, a rally (or correction) often ensues.
And as it just so happens, the stock we’re featuring today looks ready to do just that.
In the daily candlestick chart above, you can see that Pure Storage Inc. (NYSE: PSTG) shares erupted following earnings on August 21st.
After dropping tremendously earlier in the year, PSTG has mostly chopped sideways. But after releasing a positive earnings report, investors are starting to believe in PSTG once again.
If PSTG can’t move past key resistance, though, the recent “blast” upwards could end up fizzling out.
However, if PSTG does surpass resistance by a significant amount (say, up to $17.00), then a massive breakout would likely be confirmed, with the next level of resistance at around $20.00.
That’s a huge jump, and potentially one that traders can latch on to with ease should share prices keep on rising.
Because despite the pedestrian name, Pure Storage Inc. is actually a Silicon Valley tech firm that focuses on providing data storage solutions.
Starting in early August, the tech sector got absolutely crunched by the market’s downturn. With a recovery looming, PSTG could be a prime candidate to benefit off the sector’s upward momentum.
Potentially leading to a breakout past $17.00.
If PSTG does indeed fly upwards, a “gains rocket ship” could be waiting for traders on the other side of key resistance.
It’s happened before to companies in similar situations, even those without oversold sectors to call home.
PSTG is special in that regard, however, making it an even more attractive post-earnings setup than usual.
