Investors are still waiting for U.S. stocks to stabilize. Though the NASDAQ Composite eked out a gain on Friday, other indices continued to fall. The S&P 500 dropped 0.82%, closing a week in which that index fell over 11%.
On Sunday night, futures indicate markets should open higher. Whether they close in that fashion is anyone’s guess, and trading this entire week is likely to be volatile.
With retailers taking center stage, earnings reports this week could perhaps calm the markets. To be sure, “beats” and “misses” relative to consensus won’t move stocks. But calm, sober, forward-looking commentary might at least suggest that the worst-case scenario for companies in the U.S. and elsewhere isn’t set to play out.
Monday’s big stock charts focus on three companies who report earnings this week at a crucial time for their stocks and the markets as a whole. All three stocks, like most stocks in this market, are looking for support to hold. The charts suggest that solid earnings reports could go a long way toward that goal.
Ross Stores (ROST)
Off-price retailers like Ross Stores (NASDAQ:ROST) had been mostly bulletproof in this bull market. But as the first of our big stock charts shows, support is tenuous ahead of fiscal fourth quarter earnings on Tuesday afternoon:
- Declines last week led ROST to exit a solid, consistent, uptrend. Support then gave way on Thursday. Shares did hold the 200-day moving average on Friday; if that support breaks, there is a significant amount of potential downside ahead.
- It remains to be seen if even a strong earnings report can reverse the tide. Rival TJX Companies (NYSE:TJX) gained 7% after a blowout report last week. Nearly all of the gains were erased in the following two sessions.
- As a result, trading in ROST this week seems like it could signal market sentiment. This unquestionably is a quality name, and one of the best stocks of the past 30 years. That hasn’t been enough to draw buyers in yet. If ROST can’t hold the 200DMA with even a strong report, valuation may take precedence over quality in the rest of the market as well.
Dollar Tree (DLTR)
As the second of Monday’s big stock charts shows, Dollar Tree (NASDAQ:DLTR) has broken through its support. That, too, puts pressure on Wednesday morning’s earnings report:
- DLTR stock trades at a 14-month low after Friday’s decline. Shares exited a narrowing descending wedge, dashing hopes for a reversal.
The one piece of good news, however, is a bit of a “hammer chart” on Friday. Shares bounced back from early-session lows, at which point shares were down over 5%, and closed near the day’s highs. Meanwhile, as the weekly chart shows, buyers stepped in at similar levels back in 2018, after a pair of disappointing earnings reports sent the stock tumbling. DLTR will be looking for a repeat after tumbling following November’s third quarter release.
- The options market is pricing in a big move here in the range of 10%. Technically and fundamentally, that makes sense. Dollar Tree needs to regain investor confidence. But factory shutdowns in Asia could cause supply chain disruption and lead to disappointing guidance for the coming year. With support breached, the downside could be severe.
- But if Dollar Tree can provide some reason for optimism, there’s room for a solid rebound. And a good report might do more than help DLTR stock — it could provide a roadmap for the rest of the sector.
Sea Limited (SE)
Somewhat quietly, Sea Limited (NYSE:SE) was one of the best stocks of 2019. SE stock gained 255% for the year, outpacing the likes of Shopify (NYSE:SHOP). Roku (NASDAQ:ROKU) was one of the very few stocks to do better.
That performance continued into 2020 until lately. But ahead of fiscal fourth quarter earnings on Tuesday morning, the third of Monday’s big stock charts shows some reason for optimism:
- Like JD stock, SE reversed out of an ascending wedge. But flat trading on Friday creates a bullish test of the 50-day moving average. Shares are in line with support from late January and early February as well, and on decent volume. Investors don’t seem to be giving up on SE just yet.
- Tuesday’s report could change that. At 13x trailing twelve-month revenue, SE stock is expensive even by sector standards. The 2020 outlook could be somewhat soft given coronavirus concerns. It certainly wouldn’t be stunning to see shares give back some of their gains, particularly with the stock having quadrupled from where it traded at the beginning of last year.
- That case makes SE stock an interesting stock to watch — and a test for market sentiment. If investors are willing to give the benefit of the doubt to a high-multiple stock with significant exposure to Asian economies, that’s unquestionably good news. If not, however, a sell-off in SE stock might suggest other growth stocks could see continued pressure.
Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. He has no positions in any securities mentioned.