Trade the Volatility After Earnings Reports

NEW YORK (TheStreet) -- The volatility following an earnings report can provide trading opportunities for investors and traders in a strategy I call "buy and trade."

Quite often a stock will move up or down or both, following an earnings beat, miss, or a shift in guidance. This volatility can provide an opportunity to adjust positions in the stock. I advocate using GTC Limit Orders to buy weakness to a value level, or to sell strength to a risky level. Below, I review the stocks that reported their results on Tuesday and Wednesday.

On Monday I profiled seven stocks that reported results on Tuesday in Handicapping Tuesday's Earnings Reports. Five of these stocks were Dow components.

On Tuesday I profiled nine stocks that reported results on Wednesday and will report Thursday and Friday in Handicapping Key Earnings Reports. Six of these stocks are Dow components. Two stocks reported their results on Wednesday.

CSX ( CSX) ($21.19) declined to $20.59 on Wednesday after warning that coal and agriculture shipments would be depressed by the effects of the U.S. drought and competition from cheap natural gas. The stock tested my monthly pivot at $20.78 giving aggressive investors or traders the opportunity to add to positions. My semiannual value level remains at $17.35 with my semiannual risky level at $22.60.

Goldman Sachs ( GS) ($124.92) beat both earnings-per-share estimates and revenue but with little price volatility after results were announced. The stock traded higher going into the report. This was a case where better than expected results were factored into the price action before the release. My monthly value level is $106.35 with a weekly risky level at $127.17.

IBM ( IBM) ($200.63) reported their sales missed analysts' expectations and the company gave a cautious outlook citing weakness in Europe. The stock stayed below my monthly pivot at $208.88, which indicated risk to the 200-day simple moving average at $197.83 and Wednesday's low was $198.55.

The weekly chart shifts from positive to neutral on a close this week below its five-week modified moving average at $203.41. Without a rebound the weekly chart will shift to negative next week. My semiannual value level is $178.43 with a monthly risky level at $208.88.

Intel ( INTC) ($21.79) beat lowered earnings estimates, but issued a warning that sales of personal computers should remain weak this holiday season. The company cut its revenue estimates for the year-end quarter. The stock traded down to $21.27 on Wednesday closing in on my semiannual value level at $21.14. My monthly risky levels is $25.07. The weekly chart is negative but oversold with the stock closing in on its 200-week SMA at $21.18.

Johnson & Johnson ( JNJ) ($71.00) beat earnings estimates and the stock opened above my quarterly risky level, now a pivot at $68.76. My semiannual value level is $62.14 with monthly and quarterly pivots at $67.56 and $68.76 with annual risky levels at $70.65 and $75.79 where profits should be taken. The high, set in September 2008, is $72.76.

Coca Cola ( KO) ($37.74) beat EPS estimates by a penny, but reported that earnings declined nearly 2% from the prior year. Earnings were hurt by the negative impact of currency fluctuations as a stronger dollar hurt their significant overseas business. The stock opened higher on Wednesday to $38.14, but drifted to a day's low at $37.70, staying between my semiannual pivot at $36.63 and my monthly risky level at $41.86. The weekly chart shifts to negative on a close this week below the five-week MMA at $38.20.

UnitedHealth Group ( UNH) ($55.99) beat consensus estimates reporting higher revenue due to strong enrollment growth and share buy-backs. The stock opened with a high at $57.70 on Wednesday then drifted to a day's low at $55.65. My semiannual value level is $55.05 with my monthly risky level at $59.61.

Pepsico ( PEP) ($70.10) reported that they were adversely affected by currency issues as EPS declined 8% year over year, but EPS was a beat nonetheless. The company also affirmed its 2012 outlook. The stock opened with a day's high at $70.93 then drifted down to a day's low at $69.95. The stock remains between my quarterly value level at $68.44 and my monthly risky level at $72.22. The weekly chart stayed negative with a weekly close below the five-week MMA at $70.80.

American Express ( AXP) ($59.37) reported after the close on Wednesday and its third-quarter profit matched analysts' estimates. The stock drifted lower to $59.00 after the company reported that credit card spending growth slowed.

In Thursday's trading activity, investors and traders should buy weakness to my annual pivot at $57.53 or sell strength to my quarterly risky level at $60.57. The weekly chart profile stays positive on a close this week above the five-week modified moving average at $58.15.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

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