Higher timeframe context
We've done a few Airbnb posts lately. They recently had their Q4 earnings. In a nutshell, they beat in revenue, approved a $6 billion stock buyback, and announced they're starting a multi-year plan to expand the business into other areas.
Honestly, that didn't seem too bad, yet the stock gapped down around 3%. However, buyers quickly cleared all the doubts on the day after the announcement, paving the way for a solid long trade we're about to go over.
Weekly chart
This weekly chart is tricky because the stock is gapping down after their earnings report, so this last bar feels a little bearish (especially with that potential a failure above that previous pivot). However, the week isn't over, there's still two days to go. Note that overall Airbnb stock has been in an uptrend as buyers keep trying to break that IPO price.
Daily chart
Here's where we get our first big clue. Look at how buyers held the IPO price after that 3% gap down and further intraday downside.
Look at those few previous days before the earnings release. All of them are green. Now picture how many longs are in the red after the earnings gap down. That is probably what led to the initial selling pressure. Yet what a comeback into the close! Buyers managed to leave us with a huge failure to go lower, as well as a close above that IPO price we've been using as reference in pretty much every Airbnb post these past few weeks.
Hourly chart
Here we get a zoomed-in view of what actually happened on the day after earnings. Right off the open price attempted a quick bounce and was pushed all the way down to the $142 area by aggressive selling. Yet buyers managed to keep those lows as the lowest traded price for the rest of the day. Every little drop was being bought back up, putting in consistent higher lows all the way to the close, where we get a second rejection of the $149.21 level.
Pre-market action
As we've seen before, ABNB is a pretty illiquid stock outside regular trading hours, but note how price is set to open right at the $149.21 level we were looking at.
The trade
Believe it or not, I had ABNB on watch this day, yet somehow I completely missed the first push. Usually I would review the trade anyways, but given that I actually caught the second leg, I'll go for that one instead.
This was my CPT before jumping in:
Cue(s)
Recent earnings were not that bad
Earnings gap down got bought up
Daily failure and close above IPO price
Intraday cue: Daily buy triggers and leads to a strong intraday push
Intraday cue: Stock pulls back to support level
Plan
The plan was to look for entries off this support level. I watched every bar forming since that aggressive pullback and waited patiently to get involved. I like to trade off failure patterns when possible. We got two.
Trigger
Price trading above the signal bar.
5m chart
We could argue if the first trade was a good entry or not, as the signal bar closes below the level. However, the trigger is right at the level so I guess it was fine. Regardless, although the trade initially worked, price did come back to retest the level once again.
Sometimes you take that first trade and you end up closing for a small profit or break even. The trade disappoints you, as you expected a stronger move. You get distracted by your own emotions and disregard the fact that there's plenty of time left and the setup is still there, which leads you to miss the good move. Always remain concentrated until your idea is invalidated.
The second entry is where things get very interesting. Price puts in an intraday higher low, again at the level. Our signal bar is an outside bar that fails to go lower and closes at its highs. I was watching the tape here and it was a little weird because there was not much size going through yet price moved pretty quickly. Regardless, the setup was there and our job is to take it.
The trade works immediately. There's little to no stress on this trade. By the time price starts chopping around right below our target level, the weekly option premiums are up around 100%, which means you could very well trim some there and hold the rest. There was no failure that hinted a longer pullback was coming, so there was no reason to sell until the target (besides the option premium decay).
Price closed at the highs that day.
Closing notes
As I've mentioned countless times, I'm very keen on trading the open. Somehow I failed to capitalize on that opening drive move. But keeping the chart open and remaining patient proved to be the right choice.
This trade reinforces the idea that you don't always have to catch the first move. This is something I personally struggle with, as I tend to pass on any setup that has started without me. Instead, the idea is to use that move as another cue, and keep the name on watch. More often than not, there will be a good second entry.
I am posting one trade writeup every day throughout 2024. I focus on large caps using levels and price action. The subscription is absolutely free and will always be. I will strive to provide value by offering clues and ideas for you to enhance your edge. Let’s grow together!
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