Trade Alert: Earnings, 8/30/2023

Three bullish trades, as we implement an additional metric.

Two of our three trades below include apparel brands.

Adding A New Metric

Recall that in our previous earnings trade alert, we looked at these six metrics when selecting trades:

• 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 1-10, this is a measure of technical consolidation. For bullish trades, we want a high setup rating; for bearish trades, a lower one.

• 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.

In that post, we had a bearish bet against Big Lots (BIG 0.00%↑). Readers may recall that we had successfully bet against it after its big run-up earlier this summer.

This week, though, the stock was beaten down heading into earnings, and the stock spiked after it reported, though my bearish trade hadn’t filled (We also had a bullish bet on another stock in that post, one which reports tomorrow before the market opens. Note: I just adjusted the strikes on that bullish trade; please refer to that post for details).

Subscriber TJ Eastwood pointed out that BIG was “massively oversold” heading into earnings, and suggested we consider looking at RSI (Relative Strength Index) going forward. This was an excellent suggestion, so I am adding it as a metric starting today. For bullish bets, we’re going to look for stocks with RSI levels below 70, and for bearish bets, above 30.

Here’s how the stocks we’re betting on today look on all seven metrics.

Stock #1

1. Social data: +20

2. PA Options sentiment: moderately bullish

3. Setup rating: 3

4. Zacks ESP: -0.44%

5. F-Score: 5

6. Recent insider transaction(s): open market purchases in June.

7. RSI: 33

Stock #2

1. Social data: +49

2. PA Options sentiment: neutral

3. Setup rating: 7

4. Zacks ESP: 0% (neutral)

5. F-Score: 4 (this is the one I alluded to in our previous post that has a profitability rating of 8 out of 10).

6. Recent insider transaction(s): two (<1000 shares) open market sales in July by the same insider.

7. RSI: 47

Stock #3

1. Social data: +22

2. PA Options sentiment: bullish

3. Setup rating: 8

4. Zacks ESP: +2.1%

5. F-Score: 7

6. Recent insider transaction(s): an open market sale in March.

7. RSI: 49

Details below.

Trade #1