In the US stock market, the company's earnings report is a big event, because after the earnings report, the company's share price fluctuations will increase, may appear to rise or fall.

For example, Tesla made an after-market earnings on April 19, 2023, the share price fell 9.75% the next day.

Assuming you hold Tesla shares, what would you do?

• Short-term volatility does not change long-term growth logic, firmly hold

• Sell take-profit and stop-loss immediately

• The future may still fall, after selling the backhand short

The answer to this question depends on what type of investor you are and your judgment on the future of stock prices.

This article, to introduce another event pattern: financial report fall form, help investors better judge.

What is the financial decline pattern?

Financial statements fall form, as the name implies, is the trend of the company's earnings, the stock price fell.

This pattern was discovered by Thomas Bulkowski in 2003 and belongs to the short-term persistent bearish pattern.

The company's share price has been falling before the earnings report, breaking down after the earnings report, and then continue to lower the process.

According to Pukowski's analysis, the average fall in the bull market was 13% and 17% in the bear market. But if the share price reaches the bottom, the stock price can rebound 51% and 37% in the bull and bear markets respectively.

This can be seen that for long-term investors, the fall after earnings may not be a terrible thing.

But for short-term traders, a fall in earnings could provide potential trading opportunities.

Characteristics of Financial Decline Patterns

In actual combat, to find an effective and good performance of earnings fall form, Bulkowski lists some of the following conditions.

Identify trends: Before the earnings release, see if there's a drop. Because the financial statement down pattern is a bearish continuation pattern, if there was a previous downtrend, the pattern would perform better.

Financial report: After the company published earnings, the stock price fell on the day (pre-market earnings), or the next day the share price fell (after market earnings).

Intraday volatility: Look at the intraday fluctuations on the day of earnings earnings. If the fluctuations are higher than usual, it is usually 2-3 times the average in the past month. Simply put that day's candlestick is longer than usual, the pattern may be more effective.

Breakout: When the closing price of a stock falls below the intraday low on the earnings report day, it is considered to be a breakout and confirm the pattern is complete. It is worth noting that it is better not to trade until the pattern breaks down. The position of the stop can be found by finding the nearest support level.

Trading Strategies

As an investor, after finding this pattern, how to operate it?

Based on the characteristics of this pattern, Thomas Bulkowski summarizes some of the trading skills.

Long-term investors:For long-term investors who hold stocks, they can stay pat, because according to Pocawski experience, the decline may not be much (13% bull market, 17% bear market). But it is worth noting that after a bad earnings report, the next quarter may continue.

Bands Traders:For band traders who hold stocks, you can choose to sell immediately after the pattern, because in a bear market, the average decline of the share price may reach 17%.

Radical Trader:For aggressive investors, you can choose to short sell after the form appears to profit. When the stock price breaks down, that is, the closing price is below the day low of the earnings report, is the signal of short selling. In general, stock prices can be bottomed within a week, so keep an eye on them.

Target Price:When this pattern is found, the investor can calculate the potential decline, i.e. the target price. The specific formula is to calculate the target price (C) by subtracting the intra-day low (B) of the day of earnings, then subtracting the resulting result from the price of (B).

Morphological confirmation:Wait patiently for the formation and confirmation of the signal. Because the stock price movement is unpredictable. Therefore, when the closing price of a day falls below the intraday low of the day (the direction to the right of point B), it is considered a confirmation signal of morphology formation.

To give an example

Below, an example of a financial decline pattern in the multi-stock price chart.

Before the 2022 Q4 earnings report, the spelling of multiple shares is in a downtrend, indicating that the downtrend may continue.

After the release of earnings, the share price is significantly lower, and intraday fluctuations are large, with the highest and lowest prices in the day were $82.8 and $75 respectively, with a difference of $7.8. This can be calculated that the target price of the fall is $67.2.

After that, the share price undergoes a period of consolidation and ends up closing below $75 on the fourth trading day after the earnings report, indicating that the pattern has formed.

After a period of decline, the stock price eventually fell to the target price of $67, which is also a support level formed after the plutonous price jump off before the fight.

summed

The forecast bearish pattern is an event-driven short-term continuous bearish pattern.

This pattern can help investors better judge how the stock price will fall after the report.

But it is worth noting that according to Pokowski statistics, the forecast bearish pattern is not a very effective one, with only 69% and 68% reaching the target price in bull and bear markets, respectively.

Therefore, when you make a trading decision, you also need to make a comprehensive judgment in conjunction with fundamentals and other technical analysis indicators.