Volatility and opportunities are on the rise as the earnings pace reaches a fever pitch. This morning, the technical traders are pouring over their charts in search of reactions to earnings from companies like Caterpillar Inc. (NYSE:CAT), F5 Networks, Inc. (NASDAQ:FFIV) and Alibaba Group Holding Ltd (NYSE:BABA).
Today’s three big stock charts takes a look at these names along with the charting reasons that they may provide the technical bulls with short-term buying opportunities.
Caterpillar Inc. (CAT)
Caterpillar results hit the tape this morning. For the most part, the results were better than what the analysts expected, with a slight lowering of the forward-looking guidance. CAT shares had run higher into the announcement, suggesting that there is the risk of a “sell the news” reaction.
For months, Caterpillar stock has consolidated at the $95-price level, building a significant foundation for support. This morning reaction to the earnings report has CAT shares trading lower, but still above this important chart level.
Technical traders will be watching the 20- and 50-day moving averages, which have converged at $93.80. Both trendlines are ascending, adding to the bullish intermediate-term outlook for Caterpillar stock.
A slight overbought condition, as indicated by the RSI for CAT shares, will likely fuel some of the selling over the next few days. That said, the selling should be contained to the support already described, resulting in a potential buying opportunity for intermediate-term technical traders.
F5 Networks, Inc. (FFIV)
F5 Networks is another earnings mover that is set to test a consolidation level this morning.
FFIV announced earnings results that were in-line or better than analyst expectations last night after the market’s close. The results appear to have failed to impress investors who were bidding F5 stock 5% lower ahead of the open.
FFIV shares have a history as short “sell the news” reactions to their positive earnings surprises. These are often followed by strong rallies that break the stock into new bullish trends.
The last two days of heavy volume buying took F5 stock to a near overbought reading from its short-term RSI, which would justify a quick pullback in the shares. For short-term traders, this may present an opportunity to buy FFIV shares before the real buyers come into the picture.
The real action will come if F5 breaks above the $147, which would break through the top Bollinger Band for FFIV stock and initiate a fast and aggressive rally to $160. This is a trigger point that the technical traders will be watching closely.
Alibaba Group Holding Ltd (BABA)
One of the retailers that is getting it right now is Alibaba. BABA shares went stagnant in 2016 as traders felt the Chinese economy was sure to slow. Now, with signs of stability, Alibaba shares are surging again.
The earnings report this week surprised analysts as BABA beat the estimated bottom line earnings-per-share number. The positive news broke Alibaba stock’s Bollinger Band and has it on a fast-paced rally heading back towards its highs.
Short sellers have been betting against BABA stock as the short interest ratio is 10.5, down from 13 in the latest report.
The combination of short covering and the continuation of a volatility rally from the break above the top Bollinger band suggests that Alibaba shares are ready to run higher again.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
