Ahead of earnings season, U.S. stocks seem a little wobbly. Mixed trading has dominated the last three sessions, with broad market indices basically flat on Wednesday.
That trading makes some sense. The impeachment trial is garnering the headlines. And this earnings season is important while recent history suggests U.S. stocks could make a move. Equities fell sharply amid second-quarter earnings in July, dropping 6% in six sessions. Earnings reports beginning in late October catalyzed the recent rally.
On Friday, we highlighted three big stock charts ahead of their own key earnings releases. Thursday’s big stock charts focus on three names that already have reported — and sold off as a result. All three stocks are hoping for a rebound, and market optimism driven by the rest of the earnings season certainly can help.
Fourth quarter earnings from Netflix (NASDAQ:NFLX) were widely anticipated, given new competition from Disney (NYSE:DIS) in the quarter. NFLX stock did sell off after earnings, but the first of Thursday’s big stock charts suggests it could rebound:
- Technically, the 3.6% decline on Wednesday isn’t all that damaging. NFLX remains nicely within an uptrend that began in late September. Assuming the stock can find support, potentially at the 50-day moving average, a bullish ascending triangle pattern still holds. NFLX could even see a bullish “golden cross” in the coming sessions — again, if shares can find support.
- The report itself doesn’t look that damaging despite the negative reaction from the market. Subscriber additions in the U.S. and Canada were modestly below consensus estimates, but revenue and adjusted earnings both were ahead of the Street. Meanwhile, international subscriber growth was strong — and it’s in those markets that Netflix still has the biggest opportunity.
- Fourth quarter earnings seem highly unlikely to resolve the debate between NFLX bulls and bears. Bulls will point to subscriber growth; bears to full-year guidance for free cash flow burn of roughly $2.5 billion From a near-term standpoint, it might be the rest of the market that decides. As long as investors stay confident in U.S. stocks and remain willing to pay up for growth, the chart suggests NFLX can rebound once again. Anything less, however, and it looks like $340 has reverted from support last year to resistance this year.
United Airlines (UAL)
United Airlines (NYSE:UAL) stock simply can’t get any traction, a problem which continued this week. The second of Thursday’s big stock charts suggests 2020 performance might come down to one external factor:
- UAL stock has given back about 7% in just the last two sessions. Coronavirus fears hit the airline sector on Tuesday, and then investors sold shares off again on Wednesday despite an earnings beat. The back-to-back declines do suggest continued bearishness, with UAL exiting a narrowing wedge (on big volume both days) and now sitting well below moving averages.
- The one piece of good news on the chart is that support has held around current levels on several occasions over the past year. Of course, resistance generally has held as well, as the weekly chart shows United Airlines stock now has traded sideways for about 18 months.
- Fundamentally, there is value here. I picked the U.S. Global Jets ETF (NYSEARCA:JETS) as my Best ETF for 2020, thanks to low valuations in the sector and long-term drivers. UAL stock seems ridiculously cheap, trading at a little over 7x 2019 earnings. Those earnings were depressed by the 737 MAX issues at Boeing (NYSE:BA), which should resolve in some way at some point.
- Yet airline stocks have been cheap for years, and the uncertainty driven by both the MAX and coronavirus could weigh on shares for some time. It appears the sector is going to have to drive a sustained rally for UAL stock to do the same.
The immediate reaction to fourth quarter earnings from Schlumberger (NYSE:SLB) was modestly negative: SLB stock declined 1.1% in trading on Friday. But shares of the oil services firm continue to slip, and in the context of the third of our big stock charts, the fall looks increasingly worrisome:
- Resistance once again has held above $40. SLB stock now has exited an often-bullish ascending triangle pattern, and blown through its moving averages in the process. There isn’t really a sign of support on the chart until $32, though that of course doesn’t mean investors won’t step in.
- The inability to hold gains isn’t a new problem. SLB stock crashed along with the oil bust a few years back, and since then has continued to drift downwards despite occasional bursts to the upside: October levels represented a 14-year low for the stock. After earnings, the gains off more recent lows seem like another “dead cat bounce.”
- It’s possible SLB can rally, particularly if energy sector sentiment improves. But with shares still valued at 22x 2021 consensus earnings estimates, the sector has cheaper names to play a rebound in crude. Schlumberger needed a blowout report last week to change the story surrounding its stock; merely good numbers appear to not have been quite good enough.
As of this writing, Vince Martin has no positions in any securities mentioned.