Earnings season looms next year at a key point for the market. U.S. stocks are at all-time highs, and need a strong batch of earnings reports to keep the momentum going.
That’s particularly true for the three stocks featured in Friday’s big stock charts. Technically, all three names have clear potential for big moves in the next few weeks. In each case, an important upcoming earnings report represents a catalyst.
To be sure, it’s not 100% clear in which direction these stocks will head. But for investors willing to firmly pick a side, or traders looking for potential volatility, these big stock charts should be watched closely in the coming weeks.
International Business Machines (IBM)
IBM (NYSE:IBM) is trying to rally ahead of its fourth quarter earnings report on Tuesday afternoon. But while the first of Friday’s big stock charts suggests some cause for optimism, recent history suggests reason for caution:
- Technically, IBM stock is at least set up for a rally. Shares have exited a narrowing wedge to the upside, and cleared near-term moving averages in the process. The 200-day moving average has provided resistance that IBM stock will need to move through, but a strong fourth quarter report could provide the required boost.
- A strong report is necessary. IBM’s acquisition of Red Hat closed in July, and was supposed to allow IBM to finally get back to growth. The company infamously went 22 consecutive quarters without generating year-over-year revenue growth, and returned to declines after breaking the streak in 2017. As a result, IBM stock has gained just 4.7% total over the past decade, while the S&P 500 has nearly tripled.
- And so this is an important reason on multiple fronts. The 2020 outlook, which includes a full year of Red Hat, needs to be strong enough to inspire confidence. The chart both reflects and amplifies the fundamental importance of the quarter: trading in IBM stock next week seems likely to set its direction for some time to come. There’s a path to challenge July highs around $150 with a beat, and a potential reversal to $125 if IBM disappoints once again.
Abbott Laboratories (ABT)
Abbott Laboratories (NYSE:ABT) has posted much more impressive multi-year performance: shares in fact have more than doubled since late 2016. But resistance has been stiff of late, and Abbott Labs likely needs a strong fourth quarter report on Wednesday morning to break out:
- ABT stock certainly is gearing up for another run, with strong performance in recent sessions on decent volume. An uptrend has held since early October and investors quickly bought a small, brief dip last week. For now, anyway, shares certainly are headed in the right direction.
- Here, too, it likely takes a strong fourth quarter report for the stock to break out. Abbott will not only detail Q4 results next week, but will give guidance for 2020. Wall Street projects about 11% growth in earnings per share this year, a reasonably high bar to clear. It’s too simplistic to argue that ABT will rise if guidance exceeds expectations and falls if it doesn’t — but it doesn’t seem too far off. At the least, the second of our big stock charts suggests it will be exceedingly difficult to break out if Abbott can’t deliver an above-consensus outlook.
- Some help from the market would be useful as well. Abbott unquestionably is a wonderful company, recently increasing its dividend for the 48th consecutive year. But like most wonderful companies in this market, valuation is a question mark: the 24x forward multiple is historically high. If Abbott can deliver a big report next week, that multiple will be less of an issue. If it simply matches expectations, it will need investors to keep paying up for quality.
FuelCell Energy (FCEL)
FuelCell Energy (NASDAQ:FCEL) has been one of the market’s best stocks in the past seven months, gaining over 1,500% from late June lows. And the third of Friday’s big stock charts suggests the rally could have another leg:
- Technically, FCEL stock has established a classic flag formation, with the parabolic gain the “flagpole” and the sideways trading since the flag. Those patterns are continuation patterns, which often lead to another bounce higher after the stock consolidates. A recent “golden cross,” in which the 50-day moving average moves above the 200-day, adds to the bullishness shown on the chart.
That said, taking the broader view, the risks become apparent simply from the chart. Amazingly, FCEL stock is down 65.5% over the past year even after the enormous rally of late. It has declined 98.6% in the last five years. FuelCell Energy has delivered optimism before, but it’s always disappointed.
- And so FuelCell’s fourth quarter report, also on Wednesday, looks exceedingly important. FCEL stock is trying to follow the path of fellow (if different) fuel cell play Plug Power (NASDAQ:PLUG), which has re-inspired investor confidence over the last year. A new agreement with Exxon Mobil (NYSE:XOM) and a game-changing loan agreement seem to have de-risked the story. If FuelCell Energy can deliver a positive quarter and a strong outlook next week, the rally can and should continue.
As of this writing, Vince Martin has no positions in any securities mentioned.