The market’s tight ropewalk continues as we’re seeing weakness in the early trade today, just when investors were starting to think that they may be able to get out of October without an increase in volatility. The earnings calendar is going to start providing more opportunities for traders and in a market like this you can pick your poison (bullish or bearish) and make money either way.
Today’s Big Stock Charts looks at Visa Inc (NYSE:V), Tesla Motors Inc (NASDAQ:TSLA) and Quest Diagnostics Inc (NYSE:DGX) as three examples of earnings trades that technical and chart traders should have their eyes on.
Visa Inc (V)
Visa announced an increase to its dividend as it approaches its quarterly earnings announcement set for next week. To some, it could appear that V is trying to get things shaking ahead of the call as Visa shares have been stuck in a wide, volatile trading range.
After posting a close below the trendline on Tuesday, V shares found support at the 50-day moving average for the third day in the last ten. The move back above this trendline comes on an increase in volume, identifying that the technical crowd is taking a fancy to Visa ahead of earnings.
V stock has been a market performer for the year-to-date, but recent moves in the company have increased its relative strength against the rest of the market and other information technology companies, which is the sector that Visa falls into.
Tech stocks see seasonal strength this time of year. Over the last nine years, V has absolutely rocked the last quarter of the year, averaging monthly returns of above 4% each month to the end of the year.
The next move to $84 is likely to host a breakout higher as the technical traders are flocking to this seasonal performer ahead of next week’s report.
Tesla Motors Inc (TSLA)
Jim Chanos is fun to watch when he talks Tesla. The hedge fund manager is short TSLA shares and it appears to be for a good reason as the company continues to falter as a manufacturing company. The cars are awesome, but, that said, Tesla stock is hard to want.
Technically, we continue to see TSLA shares move lower with a bearish pattern of lower lows and highs. Currently, our technical ranking model has Tesla shares ranked a sell based on this and the trend of the 50- and 200-day trendlines, which are both descending.
TSLA is experiencing overhead resistance at the $200 level as the already mentioned trendlines are making their way lower, pressing a bearish squeeze play that will end with an increase in volatility that is likely to take Tesla shares back towards the $180 mark.
Watching for volatility puts a focus on the $192 price point. A move below this in the next few days will break the lower Bollinger Band for TSLA stock, triggering a short-term volatility sell-off that could even break the $180 mark.
With earnings slated for next week, the technicals and some common sense tell us to steer clear of Tesla shares.
Quest Diagnostics Inc (DGX)
Quest Diagnostics shares are trading flat today after quarterly results beat analyst expectations and the company narrowed their forward guidance within the previous range.
DGX is a stock that has been on our bullish target list for more than a year as its fundamentals have continued to strengthen. The slowdown in the health care sector has had an effect on Quest Diagnostics, but the stock remains a leader.
Trading just below the 50-day, DGX shares are at a short-term must-win as this trendline is transitioning into a bearish pattern. Without a break above the $85 level in relatively short order, Quest Diagnostics will turn to an intermediate-term bear.
So, how does one trade the DGX chart here? Without a break above $85 in the next week, the technical traders will take their buying cue from a touch of the $80 level. This will put Quest Diagnostics shares in position for a rally to $84, which could be the end of the trade without a break higher. However, our rating model suggests that DGX stock is more likely to break back to new highs after the elections.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
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