PANW Example: IMTF Indicator used to Predict Earnings Announcement

PANW Example: IMTF Indicator used to Predict Earnings Announcement,   One of the strategies in our Option University is called a Pre-Earnings strategy.      This strategy looks for a Ichimoku setup on Weekly time frame 3 week up to the last day before earnings.    We look for an Ichimoku setup before the earning setup.   If we don’t get a setup before earnings, we then look at all our rules and predict which way the earnings will push the instrument and look for the appropriate options.     Below is a detailed description of PANW Palo Alto Network that had earnings Tuesday after market.

 Background

Stock: PANW

Earnings date: After Hours Feb 28, 2016

Price reaction to earnings:   March 1, 2016:

Technical analysis:

For the prediction, RIGHT before the earning announcement, we look at the weekly time frame.   Since we are writing this article after the earning announcement, we will show the daily time frame first to show what Support/Resistances were seen on the weekly chart before price moved due to Earnings.

 

IMTF Indicator with Pure Price Action

Below is the Daily chart of pure price action.    Price has been in a bullish trend but has been consolidating this week around the value of 152.88.   Day of earning announcement, this value became a resistance since the “Black Cross” was above Price.    The “Black Cross” indicates that the Swing and the Long Traders have the same resistance value.      This was indicating that the instrument had a high probability of going down with earnings.

2017-03-01_161238pandw_d

 

 

 

Below is the Weekly time frame.     Before the big movement down, you had the weekly price in a green Bullish setup and also a black cross above the closing price.     Even though, you had a bullish Setup zone, you had some problem.   First, you had a black cross above price so that was a resistance not support.   Second, if you look backwards, you will see a setup of black crosses which is exactly the same place price stopped two week ago and formed a pivot high.   All these signs indicated that the Bull Setup zone would fail.    This increased the probability of price to go down…not up.

2017-03-01_170008pnw_pain

 

 

 

IMTF Indicator optimizing Fibonacci System

Below is the same chart with Fibonacci levels.    The same pivot high we spoke about that was at the old black crosses turned out to be the Fibonacci level of 78.6%.     This signifies a lower high which can possible indicate a trend reversal if that level holds.      If you remember, we taught in the Tradestation workshop on how to use the IMTF indicator to optimize Fibonacci system is to wait for price to get to the Fibonacci levels and then wait for a black cross.   In this case, we would look for a black cross above price.    We got that the day of earnings which you can see from the daily chart we showed above.      Therefore, you had the confirmation to enter a short.

2017-03-01_161845_panw

 

 

 

IMTF Indicator optimizing Ichimoku

Below is the same chart with Ichimoku.    For the Ichimoku system, we closed above the cloud and the sentiment changed.    However, the cloud breakout is within a consolidation pattern.   The best situation is when it breaks a consolidation pattern and the cloud.   Therefore, this probability of the Bullish cloud breakout was not high.   The other issue was when it broke the cloud, it didn’t’ even retest the last high before profit taking too place.     This was another sign low probability of a bullish movement.    Both of these cases along with the IMTF resistance Black cross occurring at the Ichimoku SKB indicated a high probability of it going bearish.

2017-03-01_164712_panw

 

 

 

Money Management:

 

Trading RIGHT before earnings is very aggressive therefore, we have to make sure it is worth it.    We have to look at what the possible reward can be within 1 quarter i.e. the next earnings report.    If the resistance held, it had a high probability of getting the last major black cross that started a trend.   This value is at 126.96 right before the low of 115.26.    This would be a movement from 151.90 to 126.96 with a time of 4-6 months.     This is a good Reward/Risk.    The only thing we had to do was to evaluate the Option “Greeks” to find the appropriate option trade.

 

 

 

2017-03-01_170008pnw_pain

 

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About the Author Manesh Patel