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Why Betfair’s Earnings Report Tomorrow is Important

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Why Betfair’s Earnings Report Tomorrow is Important

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Betfair is reporting their earnings for Q1 2014 tomorrow. As the Betfair stock is currently trading at a very important resistance level, whatever the figures they are reporting, there is going to be a lot of action at the London stock exchange for the gambling company. Either for good or bad.

Of course predicting heavy action on an earnings report’s day isn’t exactly rocket science. Yet, depending on the stock’s reaction to the news tomorrow, traders might pick a good entry point. Question is whether that would be an entry for a long position or a short one.

The importance of the resistance level is pointed out at the 3-year Betfair stock chart. Since the IPO in 2010, Betfair stock has been struggling to avoid plummeting below 6 pounds.

betfair-london-stock-chart

For two years the stock price failed to climb above 9 pounds as well. Finally a couple of weeks ago Betfair stock managed to penetrate that resistance level and has now approached the much more important level of 10 pounds.

Perhaps turning down the CVC Capital Partners’ offer was the right choice for Betfair. Simplifying their product range by offering more conventional fixed-odds betting on sports events was definitely beneficial for Betfair, considering the 18% increase in customer numbers in Britain and Ireland over the last six months.

Why this resistance level is more important for Betfair stock?

Remember, stock market is all about psychology.

If I had invested in a double-digit priced stock and the stock was trading for less than 10 pounds, I would not feel that excited for my choice. Maybe I would even avoid checking the stock charts as long as it remained at single-digit territory. My hopes would only return if the stock was trading again for more than 10 pounds. Maybe I would shout:

Come on Betfair, my breakeven point is now closer!

Perhaps I could even invest a bit more, which would lead me to average down, now that I could see a glimmer of hope! Not that averaging down is a preferred trading strategy of mine, but I understand several traders are quite fond of it.

Thus, by beating estimates tomorrow the report will probably cause a much needed breakout, which will likely lure more investors to buy Betfair shares. Or even those already invested in Betfair to increase their stake in the company. And that would further speed up the recent uptrend.

On the other hand, the earnings report could take the market by surprise with worse-than-expected results. In that case, Betfair stock price will surely fail to overcome the resistance level, confirming it one more time. The decline won’t go unnoticed by short-term traders, who are on the lookout for support and resistance confirmations. Selling short close to such an important resistance level is a strategy applied by many traders.

How to trade Betfair stock depending on the action

Stock trading can be easy at times like these. Well, not really. Easier said than done at least.

  • Betfair share price drops?

I would go short and place a stop loss exactly above the resistance level of 10 pounds and set my first profit target at 8 pounds, the most recent support level. Obviously I want a good risk/reward ratio for my trade. So if Betfair post so bad results that the price collapses to 9 pound or lower, I would avoid trading the stock.

  • Betfair share price trades for more than 10 pounds?

I would go long and set a very tight stop loss, maybe at 980p. I would be looking to take advantage of the momentum the breakout will bring. Therefore I won’t be holding my position for long and would be delighted to take any profits the market offers me as soon as possible. Also note the double top printed yesterday at the 5-day Betfair stock chart below.

betfair-london-stock-chart-5-day

Do you have Betfair stock in your watch list? Would you be looking to trade it tomorrow and how? Let me know in the comments below.

Jim entered the financial world by trading sports and now invests in US stock markets and forex, trying to buy low and sell high. Connect with Jim: StockTwits | TradingView