Last week, l talked about what really makes a stock an “earnings winner.”
It’s not about the actual profit margins and revenues…
Instead, it’s what the market expected of those numbers. Everything is relative.
For example, a company can post incredible numbers, and the stock slides because Wall Street thought they would be better.
That’s an earnings miss.
On the other hand, a company can post abysmal results, and the stock gaps up.
Why?
Because analysts expected those results to be worse.
The company surprised to the upside. We call that an earnings beat.
And speaking of stock gap-ups, Monday mornings have become the optimal time for these…
I’m talking big moves too!
Why?
Every Monday, the market kicks back into gear after a weekend of rest… And that reset creates a unique opportunity!
Right at 9:30 am Eastern, as the opening bell rings, we look for a very specific setup that often shows up like clockwork.
And it has delivered some incredible wins!
Take last Monday, the 21st…
ProMIS Neurosciences (NASDAQ: PMN) gained a massive 264%* after the company announced that its Alzheimer’s drug candidate had been granted Fast Track status by the FDA.
These are the kinds of morning spikes we hunt for every Monday!
Want to learn how to spot them for yourself?
Watch the video below for the full trade breakdown and strategy tutorial for my Monday Setup.
Last week, a stock I’ve held and loved for a long time tumbled hard on an earnings miss.
Was I worried then? Am I worried now?
Nope, and nope.
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What Happened With Tesla (NASDAQ: TSLA)?
The company reported earnings last Wednesday after the bell, and the stock fell hard…
TSLA 2-Day, 5-Minute Candles Chart
Why?
It disappointed Wall Street analysts on revenue, earnings per share (EPS), and operating income.
Every one of those data points came in below expectations.
Am I Concerned? Not Even Close.
This is one of the most predictable setups in the market…
The post-earnings drop.
If you’ve been in the game long enough, you’ve seen this play out countless times:
A company misses analyst expectations…
The algos start dumping…
Retail panic kicks in…
And the stock takes a dive.
What’s important to know is that the drop isn’t always justified.
Let’s break it down.
Why Stocks Tank After Missing Estimates
Wall Street Expectations Are Often Unrealistic:
Analysts set earnings forecasts based on models, guidance, and industry trends. But they’re not perfect. Far from it.
And when their expectations aren’t met, even by a few cents, the market reacts like it’s the end of the world.
Institutions and big funds trust those projections. So when there’s a miss, they sell fast.
The Market Is Always Pricing in the Future:
Stocks don’t move based on what a company just did. They move based on what’s expected to happen next.
If future guidance comes in lower than anticipated, even a profitable company can get punished.
Algos and Stop-Losses Fuel the Fire:
When earnings miss expectations, algorithmic traders react instantly.
Add in stop-losses from retail traders and swing traders alike, and you’ve got a fast, ugly selloff that can exaggerate the actual news.
But this is where the opportunity for the rest of us begins.
And by the way, I’m not picking on stop-losses. Every trader should have one before they enter a trade. That’s Risk Management 101.
How to Trade Earnings Miss Reactions (Without Getting Burned)
Look for the Overreaction:
As I like to say, “The first move of a stock after earnings is always the wrong move.”
Not every earnings miss is catastrophic. Sometimes a company misses by pennies, but the stock drops 15–20%.
Case in point: Tesla reported EPS of $0.40. Wall Street expected $0.42. The stock dropped by 13%.
This is where you look for a bounce trade or swing trade entry.
Be Patient…Don’t Catch a Falling Knife:
Trying to buy during the initial panic is a great way to get chopped up.
Let the selling play out. Once the volatility dies down, you can look for signs of a reversal.
Use VWAP as Confirmation:
Volume Weighted Average Price (VWAP) is one of my favorite tools for finding a good entry point.
If the stock reclaims VWAP on strong volume after the drop, that’s your confirmation. It means buyers are stepping back in, and the market may have overreacted.
Set a stop just under the day’s low, and you’ve got a clean risk/reward setup.
Look for High-Volatility Names for Intraday Trades:
Volatile small-caps can give you intraday bounce opportunities….
To be clear, this is not the case for TSLA, which is a swing trade candidate.
Still, the principles are the same…
Let the dust settle, look for strength, and trade with structure.
So, What’s the Play on TSLA?
I’ve been a long-time bull and owner of Tesla stock, and nothing has changed my opinion about it.
This pullback is great!
Once it retests $332 per share, we have an amazing buying opportunity on our hands. This is a fresh chance for traders still waiting on an entry.
And remember, if TSLA is out of your budget, as it is for many people, consider buying options.
They allow you to get on the price action of the large-cap names at a fraction of the price.
My Final Thoughts…
Every earnings season, we see the same cycle:
- Hype
- Panic
- Opportunity
TSLA’s dip isn’t the end of the world… It’s part of the game.
And I see it as a chance to buy a great stock at a discounted price.
Earnings season is loaded with setups just like this.
Keep your head clear, your plan tight, and your eye on the chart.
Let the market panic. You stay focused.
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
P.S.
Learn more about swing trading in my blog post.
Or is momentum trading your thing?
Don’t let FOMO destroy your account.