Guy Cohen

The NDLS Conundrum That Typifies this Earnings Season

by Guy Cohen 1. November 2016 12:07

As I run through my filters to unearth interesting opportunities, once in a while I'm faced with a conundrum stock that causes me to ponder for a while.   Over the last few days it's been NDLS which has earnings on Thursday 3rd November.  

On the positive side: 
As you can see from the chart, its OVI has been fantastically positive for the last two weeks, which is what brought it to my attention in the first place.  
It's also starting to base sideways, though I typically prefer at least two months of basing.  

On the negative side: 
Implied Volatility is roaring away in anticipation of earnings, and the broader market is distinctly iffy in advance of the election.  Also the stock, while having a decent last couple of days, is still very much in a broader negative funk, and so a bullish play here would be a seriously speculative punt.  

ndls 2016.11.01.png

So, what to do?!  

This is one of those occasions where I'm leaning towards a post-earnings scenario to materialise rather than pre-earnings.  

While the S&P 500 OVI Sentiment Indicator is still officially green, I can see behind the scenes that the bears are making ground on the bulls.  The chart below suggests some momentum that way, even if the main indicator hasn't yet changed colour.  

ovisi 2016.11.01.png

Just a couple of other things to mention ... 

Remember, we only trade when we have serious conviction about a particular setup and the broader market is reasonably favourable.  If the market were unambiguously bullish and the stock on a more positive footing it would be almost impossible to ignore.  But for now there are too many question marks, so at the very most I'd look again after earnings or put a meaningless amount on it just for fun.  

If earnings is positive, then there may be a post-earnings setup that we like.  If they're negative then we haven't lost anything at all.  

Also note how clean my chart of the stock is.  Clutter only causes confusion.  As OVI Traders we can make sound decisions based on the strength of our proven indicator and excellent trading plan.  

Remember, my OVI indicator reveals the activity of leveraged investors, and enables us to follow what they're doing.  

I trust that's been a useful tutorial of how to look at a tempting but flawed chart while the markets are jittery!  

Workshop Notice: 
Finally this is the last call for the 3-part payment option to attend my workshop on 26th November.  If installments suit your needs, don't delay.

All the best