2023 Best Chart Study: ELF
Analyzing key characteristics behind a 4x EPS Gapper
Today at a glance:
In-depth chart analysis of major earnings gapper, ELF
3 Key Takeaways & Lessons to apply in the future
One of the easiest ways to improve in the market is by carving out time in your daily routine to mark up winning charts. This habit will help you develop your eye to spot winning charts in real-time.
I try as best as I can to do this daily and will start to send out my markups through Substack as well.
Today’s deep dive: E.l.f. Beauty, Inc ($ELF)
Key Takeaways:
1. Follow The Relative Strength Line
During market corrections, scan the hell out of the RS New Highs list. This will catch names like ELF before they start their massive price advances.
Look at all the RS New High Before Price Pink Dots that this name displayed in June of 2022, when the stock was trading NEAR LOWS. This tells us institutions are accumulating while the market is seeing weakness, one of the first major signs that this stock could be a winner.
Over the next couple of months, we would see repeat RSNHBP Pink Dots as price moved up the MAs, again telling us that not only were institutions accumulating near lows, but they are also accumulating on the way up. They want shares.
Then, as price matured and the public took notice of what was going on, there were fewer and fewer RSNHBP Pink Dots. ELF stopped outperforming as strong as it was prior, which is common as moves mature. Once you notice this, you should be on the lookout for further negative RS clues, one of which we got yesterday as we lose the RS 21EMA. If long from much lower, this is a defensive sell signal.
2. Spotting & Trading Serial Gappers: Look For Character Change
The first two earnings gaps from ELF worked incredibly well, especially using the HVC entry tactic I talk about so often on social media. They showed strong volume accumulation in conjunction with major price gap-ups. This is day 1 strength! But, what’s more important is the follow-through, which we saw take place in impressive fashion on day two and beyond.
But, by the 3rd/4th gaps, everyone has eyes on ELF. Follow-through is less explosive. There is more chop around the HVC. It’s clearly harder to make progress. Being able to recognize where we are in the gap-up cycle will help gauge expectations, guide position size, and understand the upside (and downside) potential of any trade you take.
AND, by simply using the HVC from Day 1, you can get a good sense of how institutions are viewing risk appetite. We can see the most recent gap-up found resistance at the HVC and has since rolled over. This tells us institutions are not in the mood to take on further risk on EPS news…
3. Trust Your Strategy, Always!
Unfortunately, I never made any money on this massive run. Why? Because I didn’t trust my strategy and was scared of taking a loss (even during a bear market).
One of the key things to note about the EGU strategy (Earnings Gap Up) is that oftentimes, the sheer demand following a news/earnings gap up will continue to drive the stock price higher even during market corrections. For this reason, it is worth my time to take at least a partial position in a name displaying all of the characteristics of a winning stock.
In this instance, the HVC was buyable on two separate occasions and would have netted impressive gains with little to no stress, easily making up for any other losses I would have incurred trying the same setup elsewhere during this period. Again, trust your strategy, always!
That’s all for today, I hope it has been helpful and you’ll find value through this new daily email.
Until next time,
Greg
Other resources to study:
2020 Best Charts: https://gregduncan.gumroad.com/l/wmfsd
2021 Best Charts: https://gregduncan.gumroad.com/l/2021
2022 Best Charts: https://gregduncan.gumroad.com/l/2022
Earnings Gap Up Mastery Free Email Course: https://upsideunlimited.com/earnings-gap-course