Earnings Hits and Misses Present New Opportunities


Over the past two weeks, we have heard from many of the most visible companies in the world, including the FAANG stocks, Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Google (GOOGL), who reported their Q1 earnings. The overall market reaction to the reports was mixed with traders particularly zeroing in on those companies that either guided higher or lower. In the case of FB, the reaction to their earnings was quite positive, as you can see in the chart below.

FB has gone nowhere but down since its all time high of $384, going back to September of last year, and had a lot on the line going into its report. In fact, the stock had lost 55% of its value over the past 7 months and could have gone even lower if earnings had come up short. Now, all of the sudden, buying interest in FB has picked up and, if the market steadies in any fashion, the stock could see further gains.

In the case of NFLX, just about everything that could go wrong this past quarter did, with the stock getting hammered as it fell by almost 47% in just over a week, and down a stunning 74% since its November high.

Unlike FB, which showed stronger than expected earnings, NFLX shocked traders when it reported a net loss in subscribers. That's never a good thing, but especially when the market is struggling and looking for anything that might go wrong as a way to justify selling a stock. But, in looking at the chart, we could be at one of those points where the stock has been oversold. One big clue for me is the RSI, which dipped into the teens as stochastics are nearing zero, almost always a sign that a bounce might be imminent. In fact, you can see a similar "Blue Cloud" form back in late January, and the stock bounced 100 points over just a few days. (Full disclosure: I took a position in NFLX at the end of last week.) Not to say the selling could not continue, but now we at least have a new price support level near $185, which could serve as a stop should the selling resume. To the upside, I'm looking for a move to the April 20 gap near $250, which would still keep the stock $450 from its all time high. It may never get there, but I do like the reward-to-risk at this level.

The FANG stocks only represent a small number of companies that have reported or are due to report their earnings over the next few weeks. At EarningsBeats, we keep our members up to date, including which companies are scheduled to report and which ones are likely to beat or miss expectations. In fact, every M, W and F, we include our "Upcoming Earnings Chartlist" in our FREE EarningsBeats Digest. If you would like to receive the EB Digest, just click here.

At your service,

John Hopkins

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