We’re still seeing a lot of weakness in the market as the earnings season is failing to add the spark that most investors were hoping for. While the aggregate bullish effect of the season hasn’t been felt, there have been some stocks that are seeing opportunities to extend themselves higher like Microsoft Corporation (NASDAQ:MSFT) and Amazon.com, Inc. (NASDAQ:AMZN). On the other hand, Cincinnati Financial Corporation (NASDAQ:CINF) has found itself in a must-win situation ahead of next week’s earnings results as the company’s stock is barely hanging on to its long-term bullish trend.
Amazon.com, Inc. (AMZN)
Amazon heads into the earnings confessional this afternoon as the stock sits near its highs around $850 technically teasing those looking at taking a position ahead of the numbers.
The charts indicate that AMZN shares have become less overbought over the last week as the stock took a move towards its 20-day moving average. This move is very familiar to those of us that watch Amazon as it is a carbon copy of the pre-earnings activity last quarter.
Today’s AMZN chart is somewhat different and more supportive of the bulls as the stock is now shifting into an intermediate-term bull trend with the 50-day trendline crossing back over the 100-day. Our historical testing shows that Amazon stock is 63% more likely to outperform the at-any-time returns for the two months following this crossover.
Volume on AMZN has dropped a little over the last week as we’ve seen traders back away ahead of the earnings. Call options on the stock have dropped in premium, suggesting that the options traders aren’t expecting Amazon stock to knock the cover off of the ball this afternoon.
This adds up to breakout potential for the stock on an in-line report. The potential fly in the ointment would be the fact that MSFT is growing their Azure line of business. Watch for this to take a little away from the magic that has been AWS, Amazon’s real driving force. Outside of that, the charts suggest a breakout on the way for AMZN.
Cincinnati Financial Corporation (CINF)
Last month, Cincinnati Financial shares took a hit on the exposure to the tragedy in Gatlinburg. Since then, CINF shares have spent their time consolidating and trying to place a tradable bottom, but there’s a hanging issue.
As of this week, all but the 200-day moving average have transitioned into a short- to intermediate-term bearish pattern. This means that Cincinnati Financial stock is likely to start feeling more pressure from the sellers again as overhead pressure builds.
CINF chart watchers remember the significance of the $70-level last October. The shares took a decline to this level after an earnings report that failed to impress. Now, Cincinnati Financial prepares to report its quarterly results next Wednesday as the stock sits on this same critical chart support level. This makes the earnings announcement a “must win” for CINF.
The 20-month moving average sits at $66.50, which is the line in the sand that long-term investors should be watching. A move to or below this level is going to spark additional selling as this stock has been one of the better performers in its peer group.
Microsoft Corporation (MSFT)
Again we get to cover Microsoft this week as the stock appears to be giving those patient traders an opportunity.
MSFT shares rallied after a positive earnings announcement and took the shares to new all-time highs. After ringing that bell, the profiteers stepped in to lock in gains resulting in a near 5% drop in the Microsoft stock price.
Technically, MSFT stock is now setting up for a nice short-term buying opportunity as it has worked off a technically overbought indication at the same time that it is nearing the 50-day moving average at $62.40.
Since breaking above the 50-day in October, Microsoft stock has found significant buying interest on each test of the widely watched trendline. The last test, in December, resulted in an 8% rally over an 11-trading day period.
Those looking to hold off and be patient can look for MSFT stock to head to the $60.50, which is the next site of trendline support at the 100-day. For now, our money is on a more shallow pullback to the 50-day holding as the more likely technical scenario to play out on Microsoft.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
