Earnings reports won't let you blink for the next two weeks. We are going to see over a thousand companies report, including many well-known names. Google, sorry, Alphabet (GOOGL), along with Amazon (AMZN), Microsoft (MSFT) and AT&T (T), report after the bell. I will likely look at Google and Amazon for a trade later this morning, but for the moment, I'm watching Mercury Systems (MRCY) into earnings. This one is set to report next week, but is breaking out in front of the number.
Mercury traded in a wide range, yesterday, testing the support of its current wedge pattern, as well as resistance. Buyers maintained enough strength to close above resistance, even as the broader market weakened. Yesterday's open area, $16.60, should now act as support going forward. I would anticipate additional resistance around $17, as some traders are still driven by round numbers, but I expect to see a retest of the 52-week high, $17.59, before earnings.
It isn't just price breaking out. Mercury benefits from confirmation on multiple secondary indicators. The Relative Strength Index (RSI) signals momentum is confirming the price action, here, as we are seeing a series of higher lows along with a breakout higher in the resistance trendline. The Accumulation/Distribution line is very strong, with a pattern very similar to price. Volume also is confirming the action. Lastly, we have new highs, along with higher lows, in the Ultimate Index. Volume, trend and momentum all confirm the current breakout.
Most of the recent trading volume occurred in the $15.75 to $16.10 area, so I would respect the $16.35 to $16.60 area as a stop.
Options are thin in the name, so taking this one into earnings is a bit more difficult. One idea would be to bid on a collar, using the January 2016 $15 puts long and January 2016 $17.50 calls short creating a collar. One could also consider just a simple November $15 to $17.50 call spread in the name, as well. I would lean towards the notion of playing the stock into earnings, then evaluating the options a day or two before, to ascertain whether a collar or call spread is even possible without getting killed by the bid/ask spread. If the options aren't a strategy I can employ, then I would opt for just a very small size position into earnings, and re-evaluate the position after I get a chance to read the earnings report and note the subsequent reaction in the stock price.
