Every earnings season introduces equities to a period of sifting. Profit-producing, expectation-beating companies are pulled higher while those who miss the mark fall lower. My last foray into earnings results yielded a gallery of beauties to buy. Today’s message throws a bone to bears by highlighting three stocks to sell after they dared to disappoint the Street with their latest results.
Finding them wasn’t hard. Their punishment is on full display, in the form of outsized down gaps following their respective announcements. But it wasn’t just the one day that provides fuel for my bearish argument. The lot of them are also in downtrends, submerged beneath all major moving averages.
When you combine bearish technicals with underwhelming earnings, it’s a toxic combination that usually spells lower prices.
Enough with the pitch, on to the picks. The three stocks to sell here are:
Let’s move into analyzing each price chart and mapping out an options trade.
Stocks to Sell After Earnings: Pinterest (PINS)
Pinterest was a market darling in the wake of the pandemic. Stuck-at-home consumers took to the web to scratch their shopping itch, and that benefited Pinterest greatly.
But what 2020 gave, 2021 is trying to take away. PINS stock has been incredibly volatile this year and has been stuck in a sloppy and wide eight-month range. Friday’s near-20% slashing is returning shares to the lower end of the range.
Support near $54 beckons as the next logical target. It marked the turnaround point for last quarter’s earnings-driven sell-off and should serve as a magnet now that we’re so close. To profit, consider buying short-term put spreads.
The Trade: Buy the Sep $60/$55 put spread for $2.45 or better.
Caterpillar (CAT)
Caterpillar’s response to earnings wasn’t near as dramatic as PINS. But by falling nearly 3% on Friday, the industrial giant still qualified as a disappointment. Couple that pounding with CAT’s ongoing downtrend, and it provides a tempting target for bears on the prowl.
I wouldn’t go piling in Monday morning, though. Friday’s intraday bounce created a lower wick off of support at the 200-day moving average. And this is the second time the closely followed smoothing mechanism has halted a sell-off.
As such, it’s probably best to wait until prices break $205 before pulling the trigger. The next support zone lies at $200, so we have a $5 window for prices to cruise lower after support gives way. I’d love to forecast a bigger target, but bears need to take quick profits when they get them given the continued strong backdrop for equities.
The Trade: Buy the Sep $200 put for around $5.
Stocks to Sell After Earnings: Intel (INTC)
Intel brings up the rear of today’s stocks to sell as one of the ugliest semiconductor charts out there. It’s a shame because the semiconductor industry chart is actually a stone’s throw from record highs. Sadly, Intel hasn’t participated at all for the past five months. Its last two earnings announcements gave sellers all the reasons needed to abandon ship. Tack on all the competitors in the space that boast far better fundamentals and technicals, and it’s a wonder why anyone still wants to buy INTC.
Since last week’s whack, prices have been consolidating. I’m looking for downside resolution to the pausing pattern. You could use a break of Friday’s low ($53.25) as a quick trigger or wait for a push below the pivot low of $52.30 if you need more confirmation.
The Trade: Buy the Oct $52.50/$50 put vertical for around 90 cents.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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