Trade Alert: 11/9/2023

Two bullish trades and one bearish trade.

Our Current Approach

Recall that we’re using these nine metrics,

• LikeFolio’s earnings score based on social data. The higher the number, the more bullish, the lower (more negative) the number, the more bearish.

• Portfolio Armor’s gauge of options market sentiment.

• Chartmill’s Setup rating. On a scale of 0-10, this is a measure of technical consolidation. For bullish trades, we want a high setup rating; for bearish trades, a lower one.

• Chartmill’s Valuation rating. On a scale of 0-10, this is a measure of fundamental valuation incorporating common rations like P/E, PEG, EBITDA/Enterprise Value, etc. For bullish trades, the higher the better the Valuation rating the better; for bearish trades, the reverse.

• Zacks Earnings ESP (Expected Surprise Prediction). This is a ratio of the most accurate analyst’s earnings estimate versus the consensus estimate.

• The Piotroski F-Score. A measure of financial strength on a scale from 0-9, with 9 being best.

• Recent insider transactions.

• RSI (Relative Strength Index). A technical measure of whether a stock is overbought or oversold. We’re looking for RSI levels below 70 for bullish trades and above 30 for bearish ones.

• Short Interest.

And we’re keeping track of each metric on a range from very bearish to very bullish, and tracking them and their performance in a spreadsheet, a snippet of which is below.

And we’re using their relative outperformance or underperformance versus all of the stocks that we’ve analyzed to adjust our weightings of each metric to determine which stocks we should be bullish or bearish on ahead of earnings.

The Stocks We’re Bullish On

The number in parentheses represents our composite score for a stock, based on all the metrics: higher = more bullish, and lower (more negative) = more bearish.

Bullish Stock #1 (5.1)

1. Social data: +78

2. PA Options sentiment: Very Bullish

3. Setup rating: 4

4. Valuation rating: 3

5. F-Score: 3

6. Recent insider transactions: Open market sales peaking last month.

7. Zacks ESP: -15.22% (But a Zacks #2 stock)

8. RSI: 40

9. Short interest: 9.3%

Bullish Stock #2 (20.5)

1. Social data: +21

2. PA Options sentiment: Very Bullish

3. Setup rating: 6

4. Valuation rating: 1

5. F-Score: 7

6. Recent insider transactions: Open market sales peaking in March but as recently as last month.

7. Zacks ESP: 0% (Neutral)

8. RSI: 56

9. Short interest: 3%

The Stock We’re Bearish On

Bearish Stock #1 (-0.3)

1. Social data: -26

2. PA Options sentiment: Very Bearish

3. Setup rating: 3

4. Valuation rating: 3

5. F-Score: 3

6. Recent insider transactions: Apparent wash sales last December.

7. Zacks ESP: 0% (Neutral, but a Zacks #1 stock)

8. RSI: 55

9. Short interest: 31.8%

Details below.

Bullish Trade #1

The company is Unity Software (U 0.00%↑), and the trade is a vertical spread expiring on November 10th, buying the $26.50 strike calls and selling the $27.50 strike calls for a net debit of $0.38. The max gain on 2 contracts is $496, the max loss is $304, and the break even is with U at $26.88. This trade filled at $0.38.

Bullish Trade #2

The company is The Trade Desk (TTD 0.00%↑), and the trade is a vertical spread expiring on November 10th buying the $79 strike calls and selling the $80 strike calls for a net debit of $0.45. The max gain on 8 contracts is $440, the max loss is $360, and the break even is with TTD at $79.45. This trade hasn’t filled yet. This one filled at $0.45.

Bearish Trade #1

The company is Groupon (GRPN 0.00%↑), and the trade is a vertical spread expiring on November 10th buying the $13.50 strike puts and selling the $13 strike puts for a net debit of $0.20. The max gain on 15 contracts is $450, the max loss is $300, and the break even is with GRPN at $13.30. This trade hasn’t filled yet. This one never filled.

Exiting These Trades

I’m going to set a GTC orders to exit this at 90% of the spreads, and adjust based on how the stocks react after earnings.