Investors are getting a little skittish ahead of this week’s FOMC meeting, even though the results are all but known. As of yesterday’s close, the chances of an interest rate hike were 98% for this week and another 44% chance for the next hike to happen in May 2017.
As always, we tend to monitor the charts more closely when these events approach as the technical trades become more reliable than any fundamentally driven trades, bringing us to today’s three big stock charts: Under Armour Inc (NYSE:UAA), Walt Disney Co (NYSE:DIS) and Netflix, Inc. (NASDAQ:NFLX).
Each of these companies are seeing influences from technical trends and levels that have implication on their short- and intermediate-term directional moves, despite what the FOMC may or may not say on Wednesday.
Under Armour Inc (UAA)
Shares of Under Armour dropped by more than 4% yesterday after Nike shares saw a price downgrade from UBS. Shares settled the day at $32.26, just above the 20-day moving average that has been trying to help form a consolidation for the past two weeks.
The exaggerated drop was due to the Nike price downgrade and the fact that Under Armour shares had reached an oversold reading on their RSI just a few days ago. The overbought reading indicated that the stock may have run too far too fast during the $12 rally that Started on Dec. 12.
The stock is likely to see a little more selling as the shares try again to form a consolidation above the $30 level, closer to $32. There are a number of technical trendlines congesting this area, indicating that the price zone should be considered a make-or-break hold for Under Armour.
In a worst case situation, a break below the $30 level will target a fast move to the $25 price point. One aspect that may help the apparel company is the high short interest held on the outstanding shares. Currently, the short interest ratio stands at 8.7, much higher than the average S&P 500 stock. This indicates that there is an opportunity for short covering to move shares higher on another rally.
Walt Disney Co (DIS)
Shares of Disney continue to move higher after being covered in a positive article by Barron’s over the weekend. The stock has rallied 12% since the beginning of November, outpacing the market as consumer discretionary stocks have taken a leadership role. The rally is also despite the fact that many reports have ESPN dropping subscribers at their fastest rate ever, something to keep an eye on in the next earnings report on Feb. 7.
Part of the reason behind the rally is the “buy the rumor” aspect of the upcoming Star Wars movie release, which is already reported to be in line for record-breaking ticket sales. This does put some risk on the stock that we may see some “selling the news.”
Technically, Disney shares are in the process of moving above their 20-month moving average, currently at $102.55. A close above this level would mark the first monthly close above the 20-month, which is the line of demarcation between bull and bear market trends for a stock, since April 2016.
There was an unusual amount of call volume traded on the February $110 calls during Monday’s trading, signaling that there may be some growing optimism toward the upcoming movie release. Similarly, short interest on the shares declined by 39% in the latest report. This is indicative of a crowd becoming bullish on the name ahead of an event which can often lead to a “sell the news” selloff after the movie release.
Netflix, Inc. (NFLX)
Netflix shares are backing-off of the $125 level that they found resistance at just a few days ago. The main source of resistance came from the fact that the stock hit a short-term overbought reading on its RSI, indicating that the technical buying pressure was running short.
The short-term top also drew the first in what could grow to be a series of lower highs and lower lows, something to watch closely. The lower low has yet to be put in place and there is some technical trend support to help avoid this from happening.
Namely, the 50-day moving average on Netflix, which is ascending (bullish) and currently at the $116.77 price. This trendline provided support for the stock on Dec. 1 and has been indicative of strength since the bottom formed in October.
We are likely to see some buying come in on Netflix shares as they approach the $117 mark. That said, failure for the 50-day to hold and a new short-term low to be drawn below the $112 price point will have further bearish implications for the intermediate-term outlook on Netflix shares.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
