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Trader Case Study: What Happens When You Use Corporate Earnings to Pick Trades
See which data set helped traders stay in front of REGN’s late 2017-early 2018 crash

By Elliott Wave International

According to a June 26 Fortune Magazine article, New York-based bio tech company Regeneron Pharmaceuticals is one of the "100 Best Places for Millennials to Work" in the world. Shares one of Regeneron's employees:

"The thing I love about working at Regeneron is that when they say data is king, they mean it. Our work and projects are always changing based on what the data shows us."

We hear the same expression bandied about Wall Street; data is king to determining a market's price trend, with the long-reigning monarch of that data being earnings reports.

All hail earnings reports? Not so fast!

Our very own senior analyst and long-reigning Trader's Classroom instructor Jeffrey Kennedy admits to the "seductive nature" of earnings data, tempting investors into a false sense of confidence regarding future price action. But there's a danger in such logic, as Jeffrey explains:

"My own experience trading earnings reports has been hit or miss. At the very least, it's been frustrating because there have been times when the earnings report will be positive, and the stock price will decline -- or vice a versa."


Get immediate access to Jeffrey Kennedy's free 20-minute video, "4 Keys to Crafting Rock-Solid Trades." In this video, Jeffrey reveals his time-proven tricks to ID top trade set-ups in the markets you follow. Learn more now.


You've seen this happen too, I'm sure. So, why does it happen?

Because it's not the hard data inside the earnings report that drives prices. It's how the market participants interpret that data. And their interpretation depends on the current trend in market psychology. But hold on, let's let Jeffrey explain more.

Over the course of his career as a technical market analyst and trading instructor, Jeffrey has relied on another form of data to determine the most "watch-worthy" issues: Elliott wave analysis. For Jeffrey, there are three main requirements for a high-confidence trade set-up:

  • A Clear Trend: Jeffrey explains: "The first thing I want to identify on a market's price chart is the trend." Higher highs and higher lows indicate an uptrend, whereas lower highs and lower lows suggest a downtrend at play.
  • A Recognizable Wave Pattern: Jeffrey is emphatic: "If you can't count [the Elliott wave subdivisions inside a price move], don't trade it." He sticks to the five core Elliott wave patterns: impulse wave, ending diagonal, zigzag, flat, and triangle.
  • A Clue to Price Personality: Slow and choppy price action contained within parallel lines indicates countertrend action -- i.e., a correction. Conversely, when prices move far and fast, and especially if you see a price gap on the chart, this indicates the so-called impulse waves -- i.e., the direction of the larger trend.

Now let's see how Jeffrey uses this Elliott wave data to interpret real-world price charts. One market that's fresh on the brain is Regeneron Pharmaceuticals (NASDAQ: REGN).

Our first mention of REGN comes from Jeffrey's October 19, 2017 Trader's Classroom video lesson. See why Elliott waves called for REGN to step off a sharp bearish cliff to new lows. Simply press "play" and enjoy:

 

Here's a close-up of Jeffrey's chart of REGN along with a recap of his overall forecast:

"The weight of evidence... would argue for a move to the downside."

7618REGN1

The next chart shows you how closely REGN's prices followed Jeffrey's October 19 Trader's Classroom Elliott wave script: They collapsed 35% to a four-year low.

And yes – prices fell DESPITE one of the most glowing earnings reports in the biotech company's history.

You read that right! On November 8, 2017, Regeneron published its Q3 2017 earnings, which showed "street-topping revenue" that "crushed" expectations with a 27.5% increase in adjusted income per share and a 23% increase in sales versus year ago period. (Investor's Business Journal)

7818REGNafter

The failure of a positive earnings report to stem the market's decline and fuel a rally is exactly the "hit or miss" nature of the earnings beast Jeffrey spoke about.

By contrast, Elliott wave analysis steered a clear, objective course that proved invaluable to traders and investors.

And while Elliott wave data enabled Jeffrey to anticipate the larger trend unfolding on Regeneron's weekly price chart, it also facilitated a strong assessment of the market's near-term prospects in his more recent, June 26, 2018 Trader's Classroom video lesson.

There, Jeffrey "moved down to a smaller, 60-minute time frame to examine the smaller Elliott wave substructure." The chart, pictured below showed that a large move up was on tap.

7618REGN2

And here's what happened next:

7618REGN3

In the same June 26 Trader's Classroom video lesson, Jeffrey also revisits REGN's larger trend, to answer the question:

"Is there sufficient evidence in place that the selloff from the 2017 high is complete?"

In the video, Jeffrey examines the data at hand and comes up with a strong case for one kind of move in the weeks and months ahead.

While not every Elliott wave forecast works out, the value of Elliott wave analysis is clear from this real-world example -- and from every Trader's Classroom lesson Jeffrey records for his subscribers.


Get immediate access to Jeffrey Kennedy's free 20-minute video, "4 Keys to Crafting Rock-Solid Trades." In this video, Jeffrey reveals his time-proven tricks to ID top trade set-ups in the markets you follow. Learn more now.

This article was syndicated by Elliott Wave International and was originally published under the headline Trader Case Study: What Happens When You Use Corporate Earnings to Pick Trades. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

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