I’ve watched a major rotation in the market these past few weeks.
It started off as a bloodbath for innovative companies like Roku, Snap and Wayfair.
Those stocks are all down 70% to 80% from recent highs.
That was the first phase of this bear market.
Now the rotation into so-called safe-haven stocks, such as consumer staples, is taking a beating.
These are companies like J.M. Smucker and Kraft Heinz.
I want to focus on these first legs of the bear market with two stocks in this week’s Earnings Edge: the innovator, DocuSign Inc. (Nasdaq: DOCU), and the staple stock, Campbell Soup Co. (NYSE: CPB).
Safe havens will lead the next leg lower for this bear market, but it’s still just the beginning in my book.
The next phase, which is what I’m basing a lot of my trades on, and what’s in progress now, is a bear market rally — followed by strong selling pressure.
With our companies set to report earnings this week, it’s the perfect time to look closer.
They are catching a bear market rally, and that could put some wind behind their sails for their upcoming earnings reports.
Let’s take a look…
Earnings Edge Stock No. 1: Campbell Soup Co. (NYSE: CPB)
Earnings Announcement Date: Wednesday, before the open.
Expectations: Earnings at $0.61 per share. Revenue at $2.03 billion.
Average Analyst Rating: Hold.
First up, we get a safe-haven company in Campbell Soup.
It’s a must-stock pantry item for millions of Americans, which makes it a stable play in a volatile market.
That’s what we’ve seen for the most part, as the stock rallied 30% off its November lows before the latest 10% pullback.
This week’s earnings call can really make or break CPB at a critical level.
CPB Is Under Pressure
More weakness on earnings, and retesting the lows at $40 a share will come in no time. But if CPB can hold up, then it can continue benefiting from the bear market rally.
Personally, I think CPB is just waiting its turn in this rotation.
More weakness is on the way for consumer staple stocks. It’s a move I would not look to get ahead of during earnings season.
Earnings Edge Stock No. 2: DocuSign Inc. (Nasdaq: DOCU)
Earnings Announcement Date: Thursday, after the close.
Expectations: Earnings at $0.46 per share. Revenue at $581 million.
Average Analyst Rating: Outperform.
DOCU, a cloud-based document signing platform and major stock winner during the pandemic, has fallen out of favor in rapid fashion.
Shares have plunged over 70% since last September. It’s one of the growth stocks that has taken the brunt of this sell-off so far.
But with a bear market rally in progress, now may be the perfect time to give this stock another look.
DOCU Is Ready for a Big Move
There’s a key resistance level just above where the stock price currently sits. A strong earnings report this week could help DOCU break into a nice rally higher.
It’s hard to tell on the chart, but the stock is already up 30% off the lows of just a few weeks ago.
Knowing how sharp bear market rallies can be for volatile stocks like DOCU, this one has room to run a little higher.
While earnings could be the tipping point, don’t look for a long-term entry point just yet.
Overall, the market has more weakness ahead of it.
And as this rotation plays out, the next step is a broad market decline that will linger for up to a year if we are indeed in a new bear market.