One of my favorite things to do as a trader is play devil’s advocate…
To ask: What’s the other side of the trade?
If I’m so bullish, what’s got the bears so bearish?
By understanding what the other side is counting on, I can leverage my view to have the full picture.
It sounds contradictory…
But there’s no better way to strengthen your argument than by trying to understand the direct opposite of it.
This approach also helps you cut out the emotional impulse — present in every trade decision we make. It forces you to focus on the data.
Here’s why I’m telling you this…
A perfect example of this exact situation just jumped out at me this morning.
I can see the bulls’ argument, and the bears’ argument… And by understanding both, I can uncover ideas most sides wouldn’t even consider when placing their bets.
It’s all in the data… And the data’s pointing to monster gains ahead for a household-name stock over the next few months.
Bigger Gains Ahead for LULU
Let’s talk about Lululemon Athletica (LULU), the athletic apparel company.
The company reported earnings last week that crushed expectations, sending shares up nearly 10%.
Some traders might view this as a bullish breakout and expect the stock to head higher…
While others say it’s overbought, and look to play a reversal.
What’s your take?
I see three things that tell me to be bullish on the stock…
For one, shares are holding higher after that big pop on earnings.
And the rally broke above both the short-term resistance and a previous gap from the start of the year.
The bears’ argument? Well, this is a consumer discretionary stock up 30% in 2 weeks. If you’re bearish on the market in general, and think we’re headed for recession, you have to look at this as a stock ready to revert to the mean.
But there’s another factor, hidden in the data, that makes me confident to be a bull on LULU.
And you won’t find it on a price chart.
The Earnings Play Most Traders Ignore
I’ve run the numbers, and they don’t lie.
Big post-earnings stock rallies, exactly like what we’re seeing in LULU, are followed by a continued rally about 60% of the time.
Often, one that lasts for several weeks. Even months.
I like to think of these moves as an “Earnings Boost” — a one-day shot higher that jolts the stock into a solid uptrend for weeks.
Those traders that look at a chart like LULU’s and assume the rally is finished? That all the big money has already been made?
They’re missing out on even BIGGER gains to come.
If you ask me, you want to buy call options on LULU dated out to June or July. This rally is likely just getting started.
How can I be so confident?
I’ve been trading these Earnings Boost signals for years now…
And it’s led me to some big-time gains. I’m talking options that went up 129%, 200%, and 439% within months.
But I don’t trade just any stock that moves on earnings…
I have a short list of only 75 stocks that tend to show strong moves after an earnings boost.
Earnings season is just getting started. And I expect MANY more Earnings Boost signals to take shape.
To learn how you can get access to my list, click here.
Chad Shoop, CMT
Editor, Quick Hit Profits
Chart of the Day:
One Day, People Will Get COIN
By Mike Merson, Managing Editor, True Options Masters
I get frustrated, even annoyed, when I watch the price action in Coinbase (COIN).
It seems like investors haven’t grasped that COIN is more than just a stock market proxy for bitcoin. I mean, just look at the comparison above. The moves are of different magnitude, but people clearly like to buy COIN when bitcoin rallies, and sell it when it falls.
I get this temptation… but it’s wrongheaded.
The beauty of a publicly traded crypto company is that it’s almost crypto-agnostic. It doesn’t need bitcoin to go up to make money. It helps, but it’s not everything.
Coinbase charges fees on every transaction. It makes money when people buy bitcoin, AND when they sell it.
That’s not to mention the hundreds of other cryptos users trade on its platform. Or the upcoming launch of its NFT product, which has nearly 4 million people on the waitlist (that’s 4x the number of active users on OpenSea, the dominant NFT trading platform of today).
If you think crypto is here to stay but don’t have the stomach for trading crypto itself, COIN is about as good as it gets. AND it’s down over 60% from its IPO.
Make of that what you will…
Managing Editor, True Options Masters