This Earnings Cycle Has Been A Disappointment So Far

Today’s missive is about earnings season and a short sale.  Specifically, however, it is about Splunk, whose ticker symbol is SPLK.

Over the last few days, earnings season reports have had several big name disappointments like Netflix and Facebook, as well as Friday’s surprises by Intel and Twitter to name a few.  To say “disappointment” is a bit of an understatement as these names have been destroyed, such as Facebook dropping 20% in one day.

I believed that this was a real possibility so I sold off several long positions, but held the buy in Citigroup. I do not trade equities before earnings via stock as I believe that’s best done with options, so I scanned the markets for a name that looked weak but didn’t have an imminent earnings announcement.  SPLK was one of them.

In the chart below you can see a few colored ellipses and if you haven’t guessed already, they represent the recent trades.  The red ellipse is the sell zone (near $104.00) and the green ellipse was Friday’s partial profit zone (near $100.00). The risk on the trade signal was ~ $1.50.

Friday’s broad sell-off added to the prior SPLK weakness, which led to a very nice partial profit. Additionally, the stop has now dropped to just above the entry zone, making it another awesome trade.  If there is further weakness next week (what will AAPLWealth Strength IndexAAPL is Extremely Up and trending Up do?), I am looking to reduce the position again in the mid-to-lower $80 range.