The stocks featured in Earnings Edge have lived up to the hype of earnings.
Big moves, breaking key trends, that’s exactly what we have been looking for.
Cisco jumped Thursday to new 52-week highs and broke out of the rising wedge we were watching. This is great news for the stock and gives you tight support to follow from here.
Applied Materials didn’t do much on earnings, so expect prices to drift back up to $140 a share from here.
Two weeks ago, it was Disney and XL Fleet.
Disney tried to breakout on earnings but closed back within the wedge pattern. We’ll have to give it some more time before we get a clean breakout.
XL, on the other hand, closed clearly below the support level and has trended lower since then. Look for more weakness out of that stock.
We’ll continue this week by focusing on stocks set to make big moves. So far, we’ve done a great job.
And I think our two stocks today, Medtronic (NYSE: MDT) and Workday Inc. (Nasdaq: WDAY) will produce more big moves when they announce earnings this week.
Earnings Edge Stock No. 1: Medtronic (NYSE: MDT)
Earnings Announcement Date: Tuesday, before the open.
Expectations: Earnings at $1.32 per share. Revenue at $7.9 billion.
Average Analyst Rating: Outperform.
Medtronic, a medical device maker out of Ireland, is trading in one of my favorite patterns. I’ve talked about it before, but it is an ascending triangle pattern.
Basically, it’s a bullish price pattern where buyers come in at higher and higher prices to push the stock higher. But sellers are holding firm around the same level. The tug of war between buyers and sellers is what price is all about.
And when stocks form simple to read patterns, like the ascending triangle, we know exactly how to trade them.
MDT’s Wedge Indicates Looming Breakout
You can see the clear resistance level in red, around $132 a share. Then there’s the rising support in green. At some point, we are going to get a breakout. And its very common to see these breakouts occur after an earnings event because of the sharp moves they produce.
We could gamble on the earnings move, which I would be bullish based on the ascending triangle pattern.
But I also know the expected move here is about 13% once it breaks out. So if we get a 5% move on earnings that pushes it above or below a key level, there’s almost a double-digit gain left just by simply riding the trend.
Options traders are looking for a 3% move this week. That should be more than enough to breakout of this triangle pattern.
So keep an eye on a big move from earnings, but don’t forget to play the rest of the breakout once it occurs.
Earnings Edge Stock No. 2: Workday Inc. (Nasdaq: WDAY)
Earnings Announcement Date: Thursday, after the close.
Expectations: Earnings at $0.77 per share. Revenue at $1.2 billion.
Average Analyst Rating: Outperform.
Workday is a cloud-based applications system to help companies manage their financial and human resource platforms.
It’s seen strong growth since the pandemic, with revenues rising more than 10% in each of the last four quarters. And there’s expectations for even more growth this time around.
This puts a lot of pressure on a company to maintain growth and please investors. If there are signs it is slowing, it can get hammered pretty fast.
Investors are starting to sense this too. It’s likely why WDAY is trading in a basic wedge pattern.
WDAY’s Falling Wedge Is Promising
This price pattern has a falling resistance in red and rising support in green. But, and this is what I’m watching the stock, once those two lines converge, we get a breakout that sets a new trajectory for the stock.
And seeing how narrow this wedge has become, it’s almost impossible for earnings this week not to cause a breakout.
I’m seeing options traders bet on a 3% move this week. I think they are undershooting this one. Look for a 5% to 10% move on earnings in either direction. The wedge pattern doesn’t give us much of an indication as to which way the breakout will go, but that is a major support level that goes back a year.
So if that gets broken this week on earnings, there will be much more room for the downside to profit from.
Chad Shoop is a Chartered Market Technician and options expert for Banyan Hill Publishing. He is the editor of three leading newsletters: Quick Hit Profits, Automatic Profits Alert and Pure Income. His content is frequently published on Investopedia and Seeking Alpha. Check out his YouTube Channel to see his latest market insights.