The final push of the political calendar has made it clear that politics and the market aren’t always good together. A rather productive earnings season has now been discounted to a political and even geopolitical pool of uncertainty that has even seen the market take its eyes off of what it thinks the Federal Reserve may do with interest rates.
This is one of the biggest reasons that we use technical analysis all of the time. When the fundamentals start to go haywire, the numbers (technical analysis and charts) don’t lie and always provide clarity for traders.
Today’s three big stock charts looks at bearish moves in International Business Machines Corp. (NYSE:IBM), Fiserv Inc (NASDAQ:FISV) and Paychex, Inc. (NASDAQ:PAYX) as their post-earnings trends continue to shift toward indications of lower prices.
Fiserv Inc (FISV)
The chart for Fiserv has been money for the past two years as the stock has been one of the stronger relative strength leader out there, but now FISV stock is slipping into bear market territory that is ripe for short positions.
Shares of Fiserv reacted poorly to an earnings report that fell in line with expectations. The company’s guidance also offered nothing new in terms of fundamental fuel, leaving FISV stock to decline as the “sell the news” traders came into play and took Fiserv down by more than 6% on an intraday basis.
Now that we’ve seen the proverbial dead cat bounce, as Fiserv shares rallied from $92.50 to its current $98.50, it’s time to buy, right? Not exactly.
The oversold bounce was on relatively heavy volume; however, the bounce was also asserted by Fiserv shares’ 20-month moving average. This is the long-term trendline that is often used as a barometer to delineate a bull or bear market pattern for a stock.
From a long-term perspective, the breakneck rally in Fiserv has the shares coming out of what is considered a long-term oversold condition that is going to take a considerable amount of time to work off.
Cherry on top: Many of the investment banks that are tracking the stock came out to defend, reiterate and raise bullish outlooks for the company after their flat report. This is usually a sign that the market or a stock has hit an overloved condition that is also bearish. Watch for the break of that 20-month at 92.50 to shift the sellers into high gear on Fiserv.
Paychex, Inc. (PAYX)
As goes the payroll report so goes Paychex? This payroll processing company, that has become so much more, has been struggling against the market of late. Despite solid earnings and revenue numbers, the payroll processor is lagging the rest of the market as investors have clearly seen what they think is an end to the growing job market.
Paychex shares are now sitting at a technical must-win at the $55 level, a contest that will determine the next 10% move in the stock. The $55.20 price represents Paychex 200-day moving average, a trendline that has been supportive of the shares through all of 2016. Now, the technical test is chipping away at this support while additional pressure builds overhead.
Paychex shares’ 50-day moving average has transitioned into a declining pattern that is now setting a course to add resistance at the $58 that will work its way lower over the next few weeks. This should generate a squeeze play that will put undue pressure on the Paychex bulls and likely trigger a break of the critical $55 mark.
Watch for this to lead to a short test of the $54 level, which is the lower regression band that has been in place for Paychex stock since 2011. A break below this will open the selling on Paychex to the tune of more than 20%.
International Business Machines Corp. (IBM)
International Business Machine shares have tried to muster a rally on the continued drips of news after earnings. Continued developments to its Watson product and other advances are failing to get the technical buyers into the picture.
IBM shares bounced from their 200-day moving average just after earnings and then rallied almost 5% to their current price, where technical trendline pressure looms overhead.
From a trendline perspective, IBM shares have three of four going against them as the 20-, 50- and now 100-day moving averages are all trending lower, which puts them in bearish mode for the traders. The 200-day is the lone survivor when it comes to remaining in bullish support and this looks to have its days numbered.
The last ten days or so of rallying has been fueled by the oversold condition that happened shortly after earnings. Now, with the dead cat bounce out of the way, the shares are more likely to see less strength at that $149 level on the next test.
On a little more exotic note, the share price pattern of IBM has recently drawn a head-and-shoulders pattern with the neckline right at the $152 price. This indicates that if we see the $152 price give way then volume to the downside should increase on Big Blue, putting a target price of near $140 on the shares pretty quickly.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
