Pop and Drop: Dick's Sporting Goods
CEO, Prognos Analytics
Founder of LIM Platform, (Now Morningstar)
Anatomy of an Earnings Call in Sporting Goods
Accessing Wall Street Horizon's high-quality earnings data, on Wednesday, 21 August 2019, I sent my clients an email before the market open suggesting they sell Dick’s Sporting Goods (DKS) on the opening bell. The company announced earnings at 7:30 that morning and it seemed to me to be a perfect “pop and drop” opportunity. The stock had rallied in a gap move of 10.5% in the pre-market hours following the earnings announcement from Tuesday’s closing price of $32.97 to $36.40, a huge gain, but I didn’t think it would last. I outlined the following reasons for my doubts:
T Score -0.5 does not warrant the pop
My tychoNova software has a propriety measure which I created called T-Score, which is based on the statistical test. It's a measure of uncertainty in the data.
Money flow has two maroon boxes in the last 6 days (bearish)
I’ve also developed a proprietary (patent applied for) calculation of money flow which is implemented in tychoNova. The daily score for these measures for the week prior to the 21st which are color-coded red for bearishness, green for bullishness and orange for neutral contains two deep red money flow (MNF) days, which is a sign that someone may be unloading the stock. See Figure 1.
Analogs suggest 75% odds of going down (see attached 30 60 100 and 200 day analogs)
An “analog” is an approach I use which finds periods in a stock’s history which match the most recent price action, based on statistical correlation. I use look-back windows of 30, 60, 100 and 200 trading days. Three of the four (75%) of the strongest analogs located for each of those look-back periods indicate that the stock tends to decline in the period following times in the past when the respective price patterns have manifested themselves. See Figure 2.
36.23 is the 50% retracement
On a daily chart I looked at the move down from a high price of $41.21 on April 12th, down to the low of $31.27 on August 15th, and determined that the 50% “retracement” of that move down is $36.23—halfway between those two extremes. I noted that in the pre-market pop, the stock had gotten as high as $36.62, exceeding that retracement level, a sign of an excessive move. See Figure 3.
Sporting goods and retail generally are not doing well, and Dick’s Sporting Goods is risking alienating a core customer component by considering discontinuation of the sale of firearms in its stores.
So the result was that the “pop and drop” call to short the stock on the open turned out well. The stock opened at $36.05 and if you were a bit late to get the order in it continued to rally as high as $35.32, which would have been even better. From the opening price, the stock eventually gave up all the premarket gap-move gains, and shed 9.9% to the low of $31.80 on the 26th of August. See Figure 4.
There are many different factors which go into one of my picks! But they all start with the accurate earnings calendar data I rely on from Wall Street Horizon. I was using another service but one of my smartest hedge fund clients told me I had to switch to Wall Street Horizon.