Cheesecake Factory (CAKE) was out of the gate like a shot this morning. Jim Cramer has a nice write up on the fundamental view this morning, but the technical view shows this one may not be quite as easy to own this morning.
Yesterday was the breakout, but buying a technical breakout in front of earnings is a bit like Russian roulette when you know what chamber the bullet is in. It really doesn't cut down the risk at all. There was a juicy gap left from February just waiting to be filled and any other time I would have jumped to buy yesterday, but not in front of earnings. And today, we filled that gap, kind of. Right now, the stock has left another gap, but to the downside as it jumped resistance only to run into a bevy of sellers happy to break even from their late January and early February buys.
Does the fade today make CAKE's chart bearish? I don't believe so; however, we have an extreme reading in the Commodity Channel Index, so a short-term fade or consolidation here should not come as a shock. Ideally today's low will be the low we see for the next few days. I don't have an issue leaving a small gap here, although $50 should now be a line in the sand and a very strong support level if tested. If I were going to look at anything today, it would likely be a bullish put spread out in time with $50, or even something below, as my initial short strike. It's a tough play today as the implied volatility is sucked out of the options due to the earnings release, so probably a play is best considered next week.
I might turn my attention, until that time, to Phillips 66 (PSX) instead. Now, earnings do come out next week on this one, but we have a clean break here today. The stock is pushing out both the Bollinger bands and Keltner channels in a nice expansion after a very tight squeeze. The short term money flow index (MFI) is entering overbought territory. While this hasn't necessarily been bullish for the stock, it has been helpful in terms of expectations and information. Basically, the stock should go, right here, right now with the MFI over 80. Any time the price has stalled here, a big reversal followed quickly. However, when the stock continued to push higher, the push was very strong. Therefore, PSX offers us both a price stop, shown by the rising trend line currently around $78 , as well as a time stop of no more than four days here.
Those not wanting to chase could look for a bounce off $80, but the price breakout has confirmation from the Relative Strength Index (RSI) breakout as well as the strong MFI. PSX looks like it could test $83 to $85 before earnings next week. If it is higher, then I will simply look to hedge earnings. If we haven't moved, then I will simply exit, assuming I haven't been stopped out yet.
Remember to double check earnings before making a move right now. It is easy to buy a great looking chart and get blindsided by earnings. I try to do my best to double check each one, but as a trader or an investor, this is a piece of information you should always confirm on your own.