Stocks are set to rally again after a strong market overseas. As we head to the mid-point of October, the earnings season is going to start picking up, acting as a catalyst for the market and more importantly, individual stock opportunities. Today’s 3 Big Stock Charts takes a look at Electronic Arts Inc. (NASDAQ:EA), J C Penney Company Inc (NYSE:JCP) and Netflix, Inc. (NASDAQ:NFLX). Two of the three are strong seasonal performers with all three offering compelling short-term bullish charts ripe for the bulls to seize any upside potential left in the market.
Electronic Arts Inc. (EA)
Video game giant Electronic Arts finds its way to our list as the company’s stock is testing, in a big way, critical support that the 50-day moving average. This trendline has held EA shares in a strong bullish trend since May’s earnings report. The bounce, or potential bounce, off of the key technical point may provide the next buying opportunity for those traders looking for some quick gains.
The last three forays Electronic Arts had with its 50-day resulted in short-term rallies of 3.7%, 8% and 6.7%, all while the market was trading in a tight range. One reason for the relative strength of EA shares is the seasonality due to the typically stronger sales during the holiday season.
A new oversold signal was in place on Electronic Arts stock’s RSI, which would make the 50-day test even move powerful from a bullish perspective. This is something that we are eyeing as EA stock is still undetermined on whether it will bounce sharply or linger at these prices. The latter may allow for the oversold signal to trigger and help propel shares.
Volume is on the rise on the recent test, indicating that the technical traders are taking note of Electronic Arts. Momentum has turned lower, but remains positive and EA shares remain within their volatility bands, suggesting that we should see a “normal” rally from this technical support back towards the $88 level.
J C Penney Company Inc (JCP)
The last two quarters have seen a pattern in JCPenney shares that may be brewing again. The retailer’s shares broke below their 200-day moving average yesterday for the first time since July as earnings begin to become visible on the horizon.
JCP is reaping the benefits of being an underloved stock that is starting to show signs of performing. Last quarter’s earnings report showed that the company’s fundamental shifts were starting to take hold. This was followed by management’s confirmation that the retailers would return to profitability in 2017. So far though, JCPenney stock has seen a continuation of the “sell the news” activity after the last earnings report.
The break of the 200-day trendline comes as JCP stock hits an oversold trigger, the last of which saw a fast 8% rally in the stock over three days. The previous oversold trigger netted 20% over 13 days, so we’re not taking the oversold signal lightly.
JCPenney will announce earnings on Nov. 11. This is important as we saw no better example of the “buy the rumor” from JCP last quarter as traders bid the stock 19% higher over the month heading into the report. With that history so fresh in trader’s minds, it is likely that some similar activity will happen this quarter.
Netflix, Inc. (NFLX)
Fan Favorite Netflix is on our screen today due to seasonality and a technical test and upcoming earnings.
From a seasonality perspective, NFLX is one of the stronger seasonal performers in the fourth quarter. Since its IPO in 2002, Netflix has averaged monthly returns of 6.3%, 3.0% and 3.2% for the months of October, November and December. This is much better than the average market returns, but also indicates that NFLX may be one of the Cardiac Kids to watch in the second half of October.
So far for the month, Netflix has returned 1.7%, including the recent 5.7% decline to its current levels over the last six days. The current test of the 50-day, which has grown stronger as NFLX stock has transitioned into intermediate-term bull mode, is a likely catalyst for the stock to make a run at its average October performance numbers.
Netflix’s earning report comes next week on Monday after the market’s close. NFLX stock beat expectations, but also lowered guidance for the fifth out of the last six quarters. With only 51% of the analysts giving the stock a buy recommendation, Netflix is far from over-appreciated, as the Street would like to have you think.
The technical bounce and seasonality of NFLX suggests that the stock is ready to run higher, a move that would be compounded by any sign of strength from Monday’s report.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
