ETSY Trade Idea and Chart Setup
For my issue today, I decided to do something a little different — figured I’d wrap up the market week in a new way. So I went and made a video walking you step-by-step through my trade idea in ETSY.
If you remember, I talked all about ETSY in my issue on Monday, and (not to my surprise) I hit the nail right on the head. So I wanted to take the time to show you how I got there… and then more importantly, how I actually traded it.
Check out the whole video and additional analysis HERE…
As discussed, ETSY earnings did go off with a bang.
Now, I’ll never tell you that we can *know* what’ll happen on an earnings report, but, we can definitely use technical as well as fundamental analysis and overall market understanding to make educated guesses.
I was bullish ETSY, just like I was bullish Square (SQ). Both of these companies are listed on my ‘Millennials Buy It’ list.
What is this list?
It’s a hand-crafted list of companies that are backed by fundamental analysis, fit either my Five Star or Phoenix parameters, and… are companies that I believe will do well as generational shifts continue to kick in.
What generation shifts, you say?
Well, we’re seeing this all over the place, with companies like Kraft, Buick, casual dining chains like Applebee’s, cereal companies like Kellogg and General Mills taking hits (the list goes on and on).
Traders — and investors- – NEED to know how generational shifts can affect their portfolios. This ranges from where to pull money out of ‘tried and true’ companies, and where to begin, with new ones.
We talked about ETSY Monday… it’s not only a Five Star, but also a Phoenix.
What’s the difference?
A Five Star Stock is (by the way, a little rare after the market downfall we saw in December) a very strong bullish, technical trading pattern that incorporates fundamental analysis. It’s the epitome of a trend. It includes stacked moving averages. Symmetrical pullbacks and an overall air of consistency.
A Phoenix, however, is a stock that has shown incredibly resiliency after market pullbacks. It’s demonstrated the ability to rise, even in the face of negative macro events, breaks in the technicals, and hits on binary events such as news or earnings.
A Phoenix and a Five Star, can be one in the same, but in this market environment, it’s been rare.
ETSY was one of those.
Perfect Five Star Pattern, plus the ability to rise from the ashes.
Not only was the ETSY run into earnings pristine, the bullish analysis on the report came through. After the fact, we talked about trading a 15-minute range breach for a momentum trade higher after the report — if it setup.
So, what happened?
Well, ETSY reported with flying colors (or should I say, numbers?) sending the stock even higher. Four days later, it’s still climbing, in a picture perfect 2x move.
Now, I’m not saying this to brag — so please don’t misunderstand. It was actually Henry that found this chart to begin with and showed me its glory. That’s what successful traders do though, they work together to make money. I’m telling you this because this chart has unfolded in an amazing combination of 3 great trades in a row, and the most important part about finding success in trading is learning how to recognize patterns, so you can trade it next time.
We called it Monday — just like we’ve been calling it in this name. The video above will help you be prepared for the next time.
P.S. Want one for Monday? CRM is on my list. I’ll be doing the same strategy there.
How do I get out of the 30 by 30 option credit spread – and only getting a buck-ten credit mind you – selling the 75 and buying the 80 strike back right after earnings when I never would contemplate this Lazarus of a stock – Etsy – rising higher, exhibiting extreme strength, and threatening my position. By now hasn’t everybody but their mother bought this puppy and yet it still levitates. Do I just dump the spread on Monday and take a modest few hundred dollar loss or do I stubbornly hang on and PRAY that it’s momentum dies and it doesn’t breach 76 over the next 2 weeks? Thanks for your input Danielle.
Hey Walter,
I’m not sure exactly what you mean, are you referring to a 75/80 call credit spread? If that’s what you’re referring to, then the move today, back to $68 was perfect.
ETSY was a 2x move, meaning that it gapped up twice the market maker expected move on earnings and had a continuation move. Typically, these moves last 4-6 days before the momentum fades. Today, we are seeing that fade come through, in a big way. When I buy them, on a gap up after earnings, I typically hold for 1-3 days and get out as the momentum fades. It also held because it had high short interest, but once the shorts cover, it will typically fade as it’s doing now.
Hope that helps –
Danielle
Hi Danielle, It is an excellent video. One question I still have is: What strategy did you use when you have this setup? You mentioned 3 plays here – Before earnings, on the earnings, and after earnings. What strategy did you use on each one and how do we know which strategy to use? If Calls, if so which delta or strike? Butterfly or put credit spreads – what parameters? I see everybody is teaching about setup. I bought a lot of courses I still cannot find where that info is.
JJ
Hey JJ-
Thanks so much. Earnings strategies have been discussed in the earnings classes John Carter has taught. Here is a link to the class in our store – https://www.simplertrading.com/product/earnings-secrets/
We also discuss these strategies in the trading room on a daily basis. The Run into Earnings, earnings trades, and post earnings trades all have different parameters. Typically for a run into earnings we will do delta .70 or delta .50, and for post earnings trades we do delta .70. There is a lot that goes into it and can’t really be explained thoroughly here but if you’re in the trading room, that’s where we go through the full explanation when we place the trades.
Hope that helps!
-Danielle
Great trade, Danielle. Thank you for the explanation for what to look for!
Hey Jamie –
Glad you found it helpful!
-Danielle
What episode was this. It was a good one!
Hey John,
Thanks so much. This was a special episode just for this site. I discussed ETSY on the Monday edition so I wanted to do a follow-up on Friday. We have also been discussing ETSY in the Options Gold trading room, as well as Simpler Foundation.
-Danielle
Danielle,
Thanks for the video; very helpful.
I’m curious what the triangles, squares, and dashes mean on the Phoenix indicator?
Best regards.
Hey Scott,
Glad you enjoyed the video. The squares are indicative of a strong trend, either up or down depending on the color. The box falls off, and turns to a dash, when the trend starts to fall out of alignment. The triangle is the 8/21 moving average cross. This is the trigger. You’re basically looking for the trend to shift upwards and downwards, and fall into and out of alignment. Here is an article that explains how to read the indicator – https://simpler-trading.helpscoutdocs.com/article/880-how-to-read-the-phoenix-finder-indicator
-Danielle