How To Spot An Earnings Explosion Beforehand: PDD

On the heels of earnings, Chinese e-commerce platform PDD exploded from 103 on Wednesday to 155 last week.

Were there any clues beforehand?

The following daily PDD shows it triggered a Rule of 4 Breakout in Mid-October.

This is a breakout over a 3 point trendline. In my 35 year trading career I’ve noticed that you typically don’t get quadruple tops or bottoms… the 4th time through usually seals the deal.

Notice that the Rule of 4 triggered after breakage below the 50 day line.

This served to clear the decks, creating some Blue Sky and ease of movement once the upside breakout was triggered.

Following the Rule of 4 signal, PDD stutter-stepped, backtesting the breakout pivot and filling an open gap.

Then it launched — still well ahead of last week's earnings explosion.

Following the liftoff to 116 on November 5, PDD carved out a 1 2 3 Pullback towards the breakout.

The 1 2 3 Pullback is a strategy I created in my Hit & Run books in the late 1990s that does a good job of identifying pullbacks in Runaway Moves.

The FIRST 1 2 3 Pullback following an impulse is a good risk to reward setup.

It certainly proved to be with PDD.

Following the 1 2 3 Pullback, PDD shot up again the day before earnings.

Clearly, someone had a “feeling” PDD’s earnings would beat.

But then this is why we follow technicals — because smart money always seems to know.

The following 10 min PDD shows the Momentum Earnings Gap on November 12.

Stocks inhale and exhale. This is the conceptually correct underlying behavior of price.

Notice that PDD basically flat-lined, forming a Slim Jim after gapping up with authority on Thursday.

PDD exhaled on Friday, with alternating price action from Thursday’s earnings.

In other words, on Friday, the correct posture was to chase PDD’s Gap & Go.

PDD gapped up to 140.72, which proved to be the low for the session on Friday.

An Opening Range Breakout (trade above the 1st half-hour’s high) paved the way for a run to 155.61.

Taken together, the concept of alternation and inhaling and exhaling combined with Friday’s Opening Range Breakout opened the door to a 15 point 10% move in one day.

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