Earnings Shock: Why IBM, Chipotle, and American Airlines Tumbled—and What Comes Next

In baseball, they refer to a team that scores more than one run in an inning to have put up a “crooked number.” I think that’s pretty clever, as before I had never thought about the fact that all digits other than “1” are far less straight than numero uno. Well, a recent trio of earnings reports caused my screen to see a lot of crooked numbers, in red, on Thursday morning.

IBM actually beat Q2 earnings and forecast improved cash flow and decent revenue growth. However, its software segment lagged, and that prompted a nearly 10% selloff Thursday morning. And while technically only one of those digits is crooked, put them together and “the beemer” has dropped down to where it stood at the end of January.

CMG missed estimates, and now expects flat year over year sales. That took the stock down 12% at the open Thursday, and moved CMG’s price all the way back to 2023 levels. That’s back before the Adobo Ranch dip menu item was even a twinkle in the eye of CMG’s product team.

AAL dropped more than 8% despite a decent quarter. But the stock fell based on the forward-looking view based on tougher macro conditions that widened AAL’s expectations for how much they will lose in the quarters to come.

How I size up the charts after the bad news is out

IBM does not appear to me to be done reducing the portfolio balances of investors who own it. I’m not touching this one. I drew in a potential resting spot, where the stock could fall and meet up with that rising trendline. That is another 7% south of where it traded early Thursday. And the PPO indicator below just now broke below 0.00 into negative territory. That could reverse itself, but I’m about playing the odds. And the odds are not in my favor there. The weekly chart looks similarly ominous. Any stock can bounce, but I’d rather find a logical point on the chart. Otherwise, it is speculation.

IBM daily chart. Source: TC2000

Chipotle (CMG): Revenue Miss and Price Levels

And that is exactly why CMG is a very different looking chart to me. The PPO has already broken down, so that question is resolved. But the stock has found buyers in the $45 area twice before, in late 2023 and before this year’s Liberation Day confusion. I actually own CMG, but have an option collar around it, with the put struck way up at $55. So I’m down 3% on the stock, as the covered call and protective puts around the stock are surging. But for those looking at CMG fresh (a subtle pun there), this is one to watch for signs the selling was more of a 1-day avocado smash.

CMG daily chart. Source: TC2000

American Airlines (AAL): Guidance Cuts Clip the Wings

Finally, with AAL, is there a chance we can make American (Airlines) great again (to buy) soon? I see some hope for multiple reasons. First, it fell right where I’d expect it to if something went badly. So let’s check that positive box. If it bounces here, it is at least a trading proposition, if not a full-fledged continuation of the rally that was interrupted. $15 is a possible target if it becomes “wheels up” again. The PPO is undecided, but that may work itself off if the stock stabilizes here. With AAL, I’m looking for a slow, gradual return to investor radars. And, hopefully, with fewer airplane analogies.

AAL daily chart. Source: TC2000

Why Traditional Stop‑Losses Fail on Earnings Gaps

This is also a reminder that traders should look beyond “conventional wisdom” such as placing stop orders under stock positions. What good did a stop order do for you when it is placed 2% below Wednesday’s close and the stock opens down a ton more than that? Nothing.

I can honestly say I have never in 30+ years of investing used a stop loss order. Because they don’t work when you need them to. Decades ago, they did work because only a small fraction of consumers were investors. Now everyone seems to be. But they are being taught by the old rules. It is out of sync.

Key Takeaways: Trading Earnings in a “Crooked Number” Market

Smaller position sizes on stocks approaching earnings is one pro tip I can offer. Losing 10% in a flash on a 5% position costs you 0.50% (50 basis points). Losing that same percentage on a 2% position costs you 0.20%. If risk management matters to you, and you know that earnings season has become a casino-like atmosphere, that’s something to think about. So too are using strategies like put options and option collars to define your worst-case scenario before the market does.