Trade Alert: Earnings, 9/6/2023

Betting against two more retail names.

The subject of one of our trades is the company that owns the Donna Karan brand.

Fading Retail Again

Recall from yesterday’s trade alert, we’re looking at seven metrics for earnings trades now:

• 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.

• 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.

Recall also our other lesson from last week was to have a bearish bias toward retail. A number of retailers, particularly lower-end ones, have reported earnings that were worse than expected.

Retail Stock #1

Here’s how today’s first retailer stacks up on our seven metrics:

1. Social data: -42 (Social data was bullish on this same name back in June, and we made an 80% gain on our bullish options trade on it).

2. PA Options sentiment: Neutral

3. Setup rating: 3

4. Zacks ESP: 0% (Neutral)

5. F-Score: 4

6. Recent insider transaction(s): open market sales in June and July

7. RSI: 38

Retail Stock #2

1. Social data: -53 (This is a former meme stock)

2. PA Options sentiment: Neutral

3. Setup rating: 3

4. Zacks ESP: -10.87%

5. F-Score: 4

6. Recent insider transaction(s): board member insider buys at ~10% above the current market price in June; smaller insider sales at slightly higher prices in July.

7. RSI: 50

Details below.

Today’s Bearish Trade #1