On Thursday morning, Delta Airlines (DAL) blew past revenue and EPS estimates, despite a challenging environment for airline stocks ($DJUSAR) in 2019. While DAL's results may have surprised quite a few people, they didn't surprise me. The best way to follow where Wall Street is placing their bets is not by watching CNBC - rather, it's by following relative strength on the charts, as that tells us where big money is investing. Keep in mind that investment firms like Goldman Sachs send their analysts to meet with company management teams to find out the latest regarding their outlook. After those meetings, they return to their office and invest clients' money. When you see companies outperforming their peers and the benchmark S&P 500, it's generally a good signal that a company is exceeding Wall Street's expectations.
Let's look at how Wall Street was treating DAL heading into their quarterly earnings report:
DAL was a leading stock, very strong relative to its airline peers. It was even outperforming the S&P 500 despite a poorly-performing airline group. Wall Street was pouring its money into DAL on a relative basis - we need to be aware of this!
Now, we have a big week of earnings ahead as Q2 earnings season kicks off. Which companies appear to be poised to report record results like DAL?
1. Cintas Corp (CTAS)
This $25 billion industrial company has been sizzling right along, gaining more than 50% since the December low and, this week, breaking further into record-high territory. It's not just the absolute gains that are impressive, however, as the company's relative strength has been phenomenal. Wall Street loves CTAS and so should we:
When you're a relative leader in one of the leading industries, Wall Street is placing a ton of confidence in a very solid upcoming earnings report. Expect a blowout.
2. Danaher Corp (DHR)
DHR is a $100 billion medical equipment company. The group ($DJUSAM) recently set a new 52-week relative high and DHR has been an excellent relative performer in 2019. I expect to see above-consensus results from this leader. Here's the current chart:
DHR showed some relative profit-taking earlier this year prior to a massive gap higher. I'm expecting something similar here. DHR has been an exceptional medical equipment company for a long time and Wall Street seems to be predicting another big quarter. I agree.
Now, let's turn our attention to relative weakness for a moment.
Want a stock that seems like it's headed for a disastrous report? Check out Alliance Data Systems (ADS). It's in the financial administration ($DJUSFA) area, which has been one of the best industry groups for the past two years. If you're downtrending in an environment that's been so favorable for financial administration stocks, what are you hiding in your closet? We may find out next week. This clue is enough to keep me away:
Now, before you talk about how the technical outlook has changed with the recent move back above key moving averages and the PPO turning positive, refer to those red circles back in February and April. The same technical improvements occurred just before the bottom dropped out. I'd be very careful with a stock like ADS - at least until we see improving fundamentals and some lasting relative strength.
At EarningsBeats.com, we never lose focus on what Wall Street is doing with their money. Relative strength provides the clues we need to be better traders. Tom Bowley, Senior Technical Analyst at StockCharts.com, joined the EarningsBeats.com community earlier this week to provide his 2019 2nd Half Market Outlook, which we recorded. If you sign up for our FREE newsletter that focuses on earnings and relative strength, we'll provide you a link at no charge so that you can review the webinar at your leisure. CLICK HERE to sign up.
At your service,
John Hopkins, President