By Neal Rau
Earnings season is upon us again, and as the first companies start releasing their earnings we are going to offer investors a brief pre-earnings analysis of current and past quarters. Our focus will be on price, and how stocks might react after earnings reports based on the recent stock price changes.
We all know it is difficult to predict what a stock might do solely based on information released during earnings. Sometimes stocks go lower after beating estimates, and the reverse is true as well, so it is also important to factor in what smart money has been doing relative to the stock price.
This combination of simple earnings data and price-based analysis can help investors not only understand earnings results, but also anticipate the stock's move after earnings are released.
The following Companies report earnings on October 11 2013.
JPMorgan Chase & Co (JPM) is expected to report earnings before the bell on Friday, and analyst estimates are EPS of $1.27 for the third quarter, which will be a 9% decrease from the same quarter a year ago. As interest rates are rising, the mortgage business is slowing for the banks. The recent downgrades have contributed to the pullback, as the stock is near a test of support, but is JPM a good buy on the recent dip?
Investors need to be aware of price, and based on the Stock Traders Daily real-time trading report for JPM, the stock is moving closer to long-term support, but isn't there yet. If the stock continues to move lower, and tests long-term support, we would be buyers near support. If support holds, we would expect a move higher and an eventual test of resistance. We would only be buyers near support.
Webster Financial Corporation (WBS) is due to release its Q3 earnings before the bell on Friday. Analysts are expecting EPS of $0.49, which is a penny better than the same quarter last year. The company has consistently beaten earnings estimates over the past two years, and the stock is up about 17% YTD, and 42% over a two-year period. However, the stock has pulled back over 11% from the 52-week highs made in late July, so is WBS a good buy on the pullback ahead of earnings?
The pullback from the yearly highs has been significant and according to the Stock Traders Daily real-time trading report for WBS, the stock is testing long-term support. As a rule, we are buyers near support, and as long as the stock remains above support, we expect higher levels and a test of resistance. However, support also acts as our stop loss, and if support breaks lower, the otherwise positive bias that exists now would dissolve, and sell signals would surface.
Earnings are expected from Wells Fargo & Co (NYSE:WFC) on Friday, October 11, before the market open. Analyst's expectations are for $0.97 for the third quarter, which would be the first quarter without an EPS increase after nine consecutive gains quarter over quarter. Increases from the Fed on reserve requirements has slowed loan growth in many banks and the drop in business related to fixed income, currencies, commodities, and equities has also become a problem. The stock has fallen over 6% in the last few weeks ahead of earnings, so is this a good time to buy shares of Wells Fargo?
Smart money is aware of price, and according to the real-time trading report for WFC published by Stock Traders Daily, Wells Fargo shares have broken below support, and support has now converted to resistance. As a rule, if the stock remains below resistance, we expect lower levels. Sell/short signals therefore already existed, and now resistance acts as risk control for those positions. Monitor resistance closely, if it breaks higher the bearish bias that exists now will dissolve, but if resistance continues to hold, our real time trading report for WFC suggests lower levels.
Navigating earnings can be tricky, sometimes investor's earnings expectations are correct, but the stocks actually do the opposite of what they think it should have done after earnings, so our opinion based on price can help make investors make more well-rounded and sound investment decisions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: By Neal Rau for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article.