Stocks are starting on a relatively strong foot this morning in response to the strong economic data from China. The Dow Jones Industrial Average is up 88 points as of this writing, while the S&P 500 and Nasdaq Composite are up 0.43% and 0.49%, respectively. Beyond that, however, we’re still seeing signs that the market is in a transition mode. That may pressure stocks in the near term.
This morning, it’s all about analyst upgrades and earnings as Monday’s three big stock charts include Eli Lilly and Co (NYSE:LLY), J B Hunt Transport Services Inc (NASDAQ:JBHT) and McDonald’s Corporation (NYSE:MCD).
Eli Lilly and Co (LLY)
Eli Lilly shares are trading lower after the company failed to get approval from the FDA for an arthritis treatment on Friday, followed by a downgrade to the shares this morning from Morgan Stanley. The one-two punch has Eli Lilly shares trading 5% in the premarket on Monday morning and pressing against two short-term bearish triggers.
First, the gap lower to an open of $81.50 puts the stock below its 50-day moving average. This is the first time that the shares have traded below the key trendline since December. The last break below the trendline occurred in October ahead of a precipitous decline from $80 to $65.
In addition, Lilly shares are going to breach their lower Bollinger Band this morning. Currently, that level is sitting at $83.32. Traders will watch for any type of support to move the share price back within this envelope to avoid a volatility selloff that would take the stock lower for days as traders react to the shift in trends.
For now, Eli Lilly shares should remain off of traders “buy the dip” list, as the shares should see additional profit-taking over the intermediate-term. Meanwhile, longer-term support lingers at $77.75.
J B Hunt Transport Services Inc (JBHT)
JB Hunt announced quarterly earnings this morning that beat on the bottom line with a little less revenue than the market had expected. The company did show a healthy 6.6% growth on their top-line revenue. The earnings news comes as the shares are trading at a critical intermediate-term support level, $90.
Currently, the most important technical component of this support level is the stock’s 200-day moving average. The stock has traded above this trendline since the beginning of the “Trump Rally” and a close below it would signal that the stock is in danger of even more short- and intermediate-term selling.
Second, the round number of $90 has tried to support the stock. We saw shares of JB Hunt bounce from $90 in late March. However, this time around the stock has some bearish momentum that looks likely to break this significant support.
If JBHT stock fails to hold its gains, then the next technical stop for JB Hunt shares is likely to be staunch resistance at $80, where the stock’s 20-month moving average lies. This is also the line of demarcation between bull and bear market trends for stocks, so a technical fight at this price would be strong.
McDonald’s Corporation (MCD)
McDonald’s stock gets a boost in the early trading based off of an upgrade from Wells Fargo. The upgrade comes as McDonald’s shares are trading toward breaking into new high territory on a move above $132.
Traders have been following the momentum on the fast-food icon since the stock broke out of its transitional trading period into an intermediate-term bull in mid-January.
Now, the stock continues to show relative strength against the borader market indices and peer groups, attracting even more buyers.
Volume on McDonald’s stock has remained constant through the latest stages of the rally, suggesting that it is far from overshooting the valuation and turning into a “crowded trade.” With a current price-earnings ratio of 24, McDonald’s shares are marked at similar valuations to the S&P 500 currently.
Some overhead resistance could come into play at $132.50, but the strong momentum behind the shares should overcome that and keep the trend as traders friends for now.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.