We’ve got a mixed rally so far on Monday, with investors unsure on whether to de-risk or load up ahead of earnings. With that in mind, it’s a busy week for earnings, with names like Alphabet (NASDAQ:GOOGL), Intel (NASDAQ:INTC), Twitter (NYSE:TWTR) and many others reporting.
Let’s look at some companies that report Tuesday morning as part of our top stock trades.
Tesla (TSLA)
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But the action leading up to earnings is important to size up. Whether we buy the name right ahead of the event or steer clear will largely depend on its action leading up to it. That is, will Tesla stock rally or selloff going into the event?
On the chart, Tesla has not been impressive so far in 2018. For the better part of two years though, shares have remained rangebound, generally topping out near $360 and bottoming near $250. For now, the bottom of that range is holding. Below it though and concerns may mount.
For all the bad news Tesla has endured, it’s impressive that the stock has held up this well. That said, for all the good news lately — hitting its production numbers, likely turning a profit this quarter, Musk settling with the SEC, etc. — it’s concerning that the stock hasn’t been able to rally much.
The longer Tesla stays below the 200-week moving average, the more worrisome it becomes. That said, if Tesla can stay above this range into the print, the likelihood of a rally increases. Should it run into the print, say into the $300 to $310 area, it increases the odds of a selloff.
Caterpillar (CAT)
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For CAT, shares are down big over the last two weeks, falling almost 15%. Keep it simple and within the channel. On an earnings pullback, look for support near $124 where CAT’s 100-week moving average and channel support rest.
On a rally, look for resistance near $145 where CAT’s 50-week moving average and channel resistance rest. A break below support may draw in more shorts and a break above resistance will likely draw in buyers to challenge the recent highs near $158.
Verizon (VZ)
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It’s also got plenty of strong trends, as shares are currently above all three major moving averages. However, it’s also near the top of its recent range (blue line), a mark that’s kept a lid on VZ stock for two years now.
Maybe it’s a bit too cute, but I would try to nab VZ on a slight earnings decline, say down to the 50-day moving average and nearby uptrend support just under $53.
Investors with a low risk appetite could stop-out if VZ stock closes below the 100-day moving average. If I were long VZ as an investment, I wouldn’t part ways now; not in this climate.
Lockheed Martin (LMT)
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Hmm…this one has been very choppy. Keep that in mind going into the print, because this one is a tough cookie. This isn’t a steady trending name or trading within a defined range. That said, it’s below recent uptrend support (blue line), with a long-term uptrend down near $300 (black line).
Remember, we’re reacting to earnings, not trying to predict the impact.
A drop below the 200-day sets LMT up as a short candidate. Over its recent uptrend and bulls will likely try to take LMT up to its recent highs near $350 and possibly all-time highs near $355.
McDonald’s (MCD)
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It helps that investors are really digging these classic blue-chip names with dependable businesses and yields lately.
I kind of like the setup, again assuming we are reacting and not predicting the action. If we pull back into the $160 to $163 area, the stock sets up as a nice buy-the-dip candidate. Over the breakout mark and MCD may make a run at its highs.
With the breakout trade though, the close is important. Do we get an impressive move and close near the highs, only to lose some gains over the next few sessions and see $168 hold? That’s fine. But a gap up, to say $174 or so, and a close near its lows will not inspire much confidence.
We may revisit MCD on Wednesday, but these are some considerations going into it.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long GOOGL.
