Trading Places with Tom Bowley

Creating A ChartList To Identify Excellent Reward To Risk Trading Candidates

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I haven't abandoned my philosophy of trading stocks of companies whose recent quarterly revenues and EPS beat Wall Street consensus estimates. Such companies are included on my Strong Earnings ChartList (SECL), which up until recently, I traded from exclusively. I still believe it's incredibly important for Wall Street to trust management teams and to confirm that they're executing their business plans. However, the COVID-19 pandemic has thrown a curve ball at us. Even companies that produced excellent, better-than-expected results can struggle - not because of poor management, but simply because of bad luck. Take the airlines ($DJUSAR) for instance. It's not their fault that 95% of customers don't want to fly right now. It's simply a result of circumstances and a changing perception of travelers.

So one change I made a few weeks back was to adjust my SECL to eliminate companies that lost relative strength and showed signs of poor accumulation/distribution (AD). Accordingly, stocks like Delta Airlines (DAL) and Blackstone Mortgage Trust (BXMT) were "cut". Check out the current charts:

DAL:

DAL's has had a great two day run and more gains could lie ahead. However, don't lose sight of the significant absolute and relative weakness that DAL has endured since February. Its industry has been vilified since the pandemic broke out and I don't believe this group is "out of the woods" just yet. The short-term rebound, though, remains in effect for now.

BXMT:

Mortgage REITs have been another awful industry group and one where it's been smart to avoid. But one silver lining has been BXMT's relative strength vs. its peers. Still, when we compare it to the benchmark S&P 500 (which is mostly what I care about in the end), it's been dismal. There's overhead price, gap and 50 day SMA resistance in BXMT's near future, so be careful - especially if you see a false breakout (intraday), followed by a poor close and on heavy volume. That could signal the start of another leg down.

Meanwhile, I do believe there are safer alternatives if we make sure that our stocks are under accumulation (rising AD lines) and continuing to display strong relative behavior. As in the past, we need to be patient and allow these stocks to test key support levels, but from there I'd be a buyer. Here's one example of a Strong Earnings ChartList stock that meets this criterion:

HTLD:

First, check out the AD line. It's been extremely bullish, even during the big March selloff. The AD line was rising throughout, which is an indication that while individuals were panicking out of the stock, professionals were willing buyers and accumulating. These types of stocks we wanted to remain on the SECL. After its strong earnings report on April 21st, it fell back to print its reverse right shoulder (final low). But check out the recovery that day, which printed a bullish piercing candle and closed back above the 20 day EMA. HTLD hasn't looked back since.

Currently, I have 112 stocks like HTLD on my Strong Earnings ChartList. In tomorrow's free EB Digest newsletter, I will provide a link for everyone in our EarningsBeats.com community to view all 112 stocks. And it gets even better. If you're an Extra member at StockCharts.com, you'll be able to download this ChartList directly into your account. All 112 stocks have key support levels annotated as a further value. If you're interested in receiving this ChartList, simply CLICK HERE to sign up for our free newsletter!

Happy trading!

Tom

Tom Bowley
About the author: is the Chief Market Strategist at EarningsBeats.com, where he provides stock market education, guidance, and trading strategies using a unique combination of technical, fundamental, and historical analysis. Tom provides EarningsBeats.com members with four portfolios (Model, Aggressive, Income, and Value), all designed to beat the benchmark S&P 500, and a revolving Watch List of hundreds of companies reporting strong quarterly earnings (must beat both revenue and EPS estimates) and exhibiting technical strength as well. These companies comprise EarningsBeats' annotated Strong Earnings ChartList (SECL), from which Tom trades exclusively. Tom writes a Daily Market Report (DMR) for members to include an executive summary, market outlook, sector/industry watch, and trading ideas. Learn More
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