Just like the Power Earnings Gap (PEG) we have Bearish Power Earnings Gaps (B-PEG). This strategy follows the PEG strategy in the exact same manner, just in the opposite direction (On the short side). Basically, you’re looking for stocks in a downtrend or a trend that has recently reversed to the downside, that report WEAK earnings. What you’re looking for is a very big GAP DOWN after the stock reports earnings but MOST IMPORTANTLY you want to see the stock CLOSE WEAK as well. A stock that gaps down big and then reverses and closes strong is NOT what you want to see in a B-PEG candidate. The way the stock closes is equally, if not more important than the actual initial gap open.
A “Bearish Power Earnings Gap” (B-PEG) is basically: A stock that gaps down after reporting weak earnings and closes the day by printing a very strong weak candle. A candle that closes at or near LOWS of the session, this is the most ideal and perfect “Bearish Power Earnings Gap” candidate! Volume will be automatically huge since it’s coming on news of an earnings report so that’s going to add even more conviction to the move since institutions are likely evacuating the name! Remember, it is important for the small players (us retail traders) to follow in the footsteps of the BIG GUYS (the institutions). Following these foot prints can be extremely profitable if you know what to look for! Stocks that gap down (especially stocks already in a confirmed down trend) on HUGE volume and close near the days low, are doing that for a VERY good reason! If the BIG sellers see future weakness, I want part of that too!
I use the B-PEG strategy often to look for stocks to short. I add these weak stocks to my watch list and I use technical analysis to find a great entry and when I feel the time is right, I take a trade! Remember you want to SHORT stocks that are ALREADY weak and this is a great way to spot these stocks and execute upon the weakness!
A picture is worth a thousand words, so let’s take a look at some B-PEG chart examples!
This $BIDU chart below is a great example of A B-PEG with a technical / tradeable pattern…
*Note: The stock GAPS DOWN big after reporting weak earnings. Note the massive sell volume on the day of the earnings report followed by the next day of continued sell pressure.
The BIG guys want out in a big way. As the pattern develops into a bear flag you can look for a tradeable move on the short side as the stock continues to break down.
Let’s take a look at a couple more examples!
$DDD with a rising wedge pattern after a Bearish PEG…
$DDD with follow through a few days later… This technical setup and trade was good for 10%+++ in two trading days!
With 2022 bearish market behavior this is another trading tool you can add to your arsenal to help navigate these new conditions! We used this same strategy for our Recent $U trade! Stay tuned for a new post on that, soon!
Cheers and Happy Trading!
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