There is no doubt that for the last year the stock markets have often been wild. This is the byproduct of headline trading. Wall Street is hostage to large swings that most often have nothing to do with the company fundamentals. And in the age where machines do most of the trading, this effect is more pronounced. Nevertheless, this opens doors for many stocks to trade. With that in mind, I will examine three tickers that have the aptitude to be wild stocks this week.
International Business Machines (NYSE:IBM), Netflix (NASDAQ:NFLX) and Bank of America (NYSE:BAC) will likely see some interesting action. Tomorrow before the open BAC will reports its earnings. Then in the afternoon both NFLX and IBM will present theirs.
The reactions to these reports are likely to draw extreme reactions especially in NFLX and IBM. BAC tends to move in smaller increments, but its charts suggests that even it could act like a momentum stock this week. Short term, all three charts have similar setups with necklines above and pitfalls below.
Stocks to Trade: International Business Machines (IBM)
For the last few weeks ahead of earnings, IBM stock was active but for no specific reason. The general equity markets went into several tizzies but now are finding footing. But this won’t last for IBM — this week it will trade on its earnings report. The short-term reaction is almost always binary on these headlines, so Wall Street is about to put on a good show for us.
Technically, the IBM stock price is back into a range of prices that has been pivotal for months. So far the bulls have failed to breach it. But therein lies the opportunity. If management delivers good guidance then IBM stock could launch off $147.50 and $153. IBM has failed at those levels for what seems like forever and this could be the week to reclaim them. If that happens, the upside potential is great near $165 per share. Conversely, the downside risk in IBM stock extends to $135 and $130 per share.
NFLX stock has long been emotional. Both sides argue their points with passion. I tend to side with the bears when it comes to the NFLX fundamentals — especially as they are today. But I never use that as a reason to short the stock. Not liking the bullish thesis doesn’t mean it is wrong. And around earnings, trading is always about expectations.
What makes NFLX stock interesting at these astronomical valuations is its global potential. So I bet that if management can’t tell a great story, the bulls are in serious trouble. Netflix needs to meet expectations from its last disaster earnings report. But more importantly, it needs to paint a good global expansion picture going forward.
NFLX has teetered just under $300 per share for a long while, so $300 becomes resistance until the bulls can prove it is not. So if the stock pops on earnings to the $300 or $320 zones then there might be opportunities to short it there. But all this will depend on the story the company tells us. Meanwhile, $290 per share is the most recent ledge, so that price is also becoming resistance moving into earnings.
If Netflix stock loses $252 per share then it could eventually target the neckline that brought it up, and that won’t come until $202 per share. While this is not a forecast, these are actual lines traders need to know.
Bank of America (BAC)
Value is never an issue for BAC stock. It is cheap at a forward price-to-earnings ratio of 10 and sells barely over its book value. Clearly Wall Street gives it no respect beyond its value today. This is in spite of a strong balance sheet and a 2.5% dividend yield which dwarfs what the 10-year U.S. Treasury bonds pay.
Tomorrow morning the company reports its earnings for the past quarter and BAC stock is likely to see some interesting action. If investors react positively then above $29.40, $29.75 and $30.30 BAC has trigger lines that would invite buyers. It is also important to note that it has failed at taking out $31 on its prior two tries.
Conversely, it is important for BAC stock to stay above $28.70 or else it could trigger a small chain of selling programs to retest the $27.50 zone. If it fails then the sellers would regain control all the way to $26 per share or lower. For this to happen I believe that BAC management would have to bungle the quarter. From what we saw from the JPMorgan Chase (NYSE:JPM) earnings report, this is unlikely.