We’re going to keep it short and sweet today. In going through charts over the weekend, it became clear that the number of companies that are flashing short-term sell signals after some serious earnings driven rallies is growing.
Today’s three big stock charts takes a look at Apple Inc. (NASDAQ:AAPL), Nvidia Corporation (NASDAQ:NVDA) and Lululemon Athletica Inc. (NASDAQ:LULU), which all fall into this dangerous category.
Apple Inc. (AAPL)
After its earnings report, Apple shares rallied more than 8%. Expectations ahead of the report were relatively low, which allowed the average report to move stocks higher.
From the look of the chart, AAPL shares have extended themselves a bit too much and are setting-up for a pullback that traders should try to avoid.
There are more than a few drivers behind the coming weakness.
- Chart resistance at $155. Apple has spent an elongated period trying to break above the clear chart resistance at $155. This is also the site of the stock’s top regression channel line that dates back to the shares’ bottom in August of 2015 (not shown).
- AAPL shares are also working off a technically overbought situation that built from the stock’s fast and aggressive rally. This indicates that the sellers remain in charge.
- Momentum, according to the MACD, has shifted and is heading lower. Another technical mark that indicates that the crowd is moving out of the shares.
Bottom line on Apple stock from the chart perspective is that we expect a regression to the mean selling over the short-term. This means that we are targeting a price move to $147, which is the site of the stock’s 50-day moving average.
Nvidia Corporation (NVDA)
Another high flyer that looks to be preparing for a profit-motivated selloff is Nvidia stock. This stock has been one of the best performers in the market for years now, but we have to remember that even the best stocks have to correct every once in a while.
NVDA shares are still about 40% higher after their early May earnings report, making it one of the best earnings trades from the Q1 earnings season.
Here are the three reasons the charts are indicating that the profit-takers are ready to start selling …
- Nvidia shares remain deep in overbought trading territory. The stock has consolidated sideways for a month or so, helping to ease the extent of the overbought readings, but this indicator is still telling us that there is some selling on the horizon.
- Extreme drop in trading volume on NVDA stock is suggesting that the latest rally may have been driven by short covering. Now, with that volume dying-off, the short squeeze is likely over. The next increase in volume should be to the sell sides.
- Our historical earnings data shows that Nvidia stock usually sees a round of profit-taking after each earnings season that normally yields a 10% decline. We’ve not seen that yet and the data is almost always right.
Watch for a profit-taking event to drive NVDA shares towards $135 where another round of traders that missed out on this white hot company should step in and start buying the dip.
Lululemon Athletica (LULU)
This one is relatively short and sweet. Lululemon Athletica shares shot 20% higher after the company shocked the market with a good set of earnings results last week. The data and charts suggest that this shouldn’t last.
- LULU stock moved directly into overbought readings of the RSI on Friday after the news.
- Lululemon Athletica stock moved above its 50-day moving average, but it still has the 100- and 200-day overhead. In addition, all three of these trendlines are moving lower, quickly. Expect the trend to remain unfriendly here.
- $55 has been historical chart resistance for LULU shares. This should also be enough to keep the chart watchers away from buying the stock as well as give those already holding the stock a sign that its time to step away from this relative strength laggard.
Our models target a move back to $45-$47 for Lululemon Athletica shares.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
