The earnings season is giving and taking away as one of the heaviest weeks of reporting for the S&P 500 is retracing the charts for many companies.
Today’s three big stock charts look at Alibaba Group Holding Ltd (NYSE:BABA) ahead of its earnings release next week as the bulls should be licking their chops. We also examine the charts of two earnings misses with Ford Motor Company (NYSE:F) and O’Reilly Automotive Inc (NASDAQ:ORLY) and consider how the earnings calls will affect their near-term price trends and targets.
Alibaba Group Holding Ltd (BABA)
Alibaba has been going through a familiar pattern as shares have been consolidating ahead of its Nov. 2 earnings release. BABA followed a similar pattern ahead of last quarter’s earnings just before making a move from the $80 level to $100 in the wake of a positive report.
Because of the consolidation, Alibaba shares are just a few days of selling away from triggering an oversold condition that would help bolster any rally that may occur because of an inline report. In addition, BABA shares are hovering just above the 50-day moving average, which has been considerable support for the stock and it would serve as another technical signal to traders for another surge in prices.
Sentiment ahead of the earnings release remains tepid, meaning that it will be easier for Alibaba to impress the Street. This is the same situation that we had last quarter, which resulted in a parabolic move as BABA stock’s top Bollinger band was breached. The lowered volatility over the last two weeks provides a narrower set of bands again, foretelling a higher probability of a volatile move higher.
Ford Motor Company (F)
Earnings aren’t going to do Ford any favors today as shares are trading almost 2% lower early Thursday morning. F stock has been a market laggard as auto sales continue to see pressure and the implications of higher interest rates on future sales is taking a toll.
Before the report, Ford was set in an intermediate-term downtrend identified by strong resistances from its 50-day moving average. Historically, F stock has been very sensitive to the direction of this trendline as the stock is down 2.7 days to each up day when the trendline is declining. The 50-day moving average held as strong resistance in September, triggering an 8% selloff.
Today’s earnings reaction is likely to set the course to another 7% decline as analysts adjust their price guidelines for Ford’s outlook. F shares should find short-term (within the next month) support at the $11-level, which will also coincide with a short-term oversold signal. From there, a move back to $11.50 will likely precede another move lower to a $10.50-point that will begin to get the value proposition buyers involved with a longer-term bottom in Ford shares. Until then, the shorts will remain in charge of F stock.
O’Reilly Automotive Inc (ORLY)
O’Reilly Automotive stock is also on the earnings front today as the company disappointed analyst expectations. ORLY shares were consolidating at the $280 level, setting O’Reilly up for a must-win earnings call that would have provided limited upside. Instead, the earnings disappointment has resulted in immediate pressure to a key support level at $270.
Chart support and resistance has been strong at $270 for the last year with ORLY shares finally punching through the price after its last earnings report, which was better than expected. Now, $270 becomes the neckline in an extended head and shoulders pattern that reaches as far back as February 2016.
The shift from consolidation to decline on the earnings announcement will shift O’Reilly stock’s MACD into a retraction, or negative momentum, adding intermediate-term selling to ORLY’s outlook. Adding to this pressure is the fact that the trade has been crowded with bulls this year with nearly 80% of the analysts covering O’Reilly stock ranking it a buy.
The clouded earnings reports will cause some target prices to be lowered as well as some likely downgrades. For now, the ORLY charts are indicating that the $250-level is a likely target for the automotive parts giant.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
