Power Earnings Gap Strategy 🎯 How to Find Epic Post-Earnings Movers
Strategy
September 2024
A Power Earnings Gap, or PEG, refers to a stock that sees a significant price gap up after reporting strong quarterly earnings results. A PEG stock will not only gap up substantially on its earnings news but will also see a huge increase in trading volume as big investors pile into the name.
Spotting Power Earnings Gaps
Most importantly, the stock must close near its highs for the day, showing strong buying pressure and momentum continuing into the close. To identify PEG stock candidates, screen for stocks that gap up a minimum of 5% on earnings news and see trading volume 3x the daily average or higher. Analyze the daily candlestick chart and only select those that close within 1% of the high. This confirms strong follow-through buying into the close.
Identifying a Power Earnings Gap stock
A true Power Earnings Gap stock must show a significant gap up move on strong earnings news, with the price increasing by 5% or more from the prior day's close. Volume also needs to spike, with shares traded coming in at a minimum of 3 times the average daily volume. Most importantly, the stock closes near its highs for the day on the earnings announcement date. Additional factors like sector strength, overall market conditions, and short interest levels are also considered.
Entering the Trade
Instead of trying to hold stocks through their actual earnings reports, consider entering PEG stocks in the days after. Watch for bullish continuation patterns like flags, pennants, or ascending triangles to form as the stock digests its post-earnings move. These consolidation patterns provide lower-risk entries, with tight stop losses placed under the pattern low. Once the pattern breaks out, traders can enjoy the potentially massive extended upside moves these PEG stocks are capable of over the following weeks or months.
Managing Risk
It's critical to size positions appropriately and use strict risk management when trading PEG stocks. Given the outsized upside potential, risking no more than 2-3% per trade is recommended. Tightening stops to breakeven or small profits helps to let winners run while limiting losses on any failures to launch.
In Conclusion
Focusing trading efforts on Power Earnings Gap stocks has several clear advantages, including avoiding unnecessary risk, following in the footsteps of big money, leveraging short interest for upside potential, and using technical analysis skills for lower-risk entries. By focusing on stocks that have genuinely 'arrived' through strong earnings and price action, traders stand to generate outsized returns by trading the ensuing short-term trends and patterns with a systematic approach.
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