Don't Ignore This Chart!

NetEase.com Getting Crushed After Earnings; The Bad News? The Selling Isn't Over

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After the bell on Wednesday, NetEase.com (NTES) was hammered as its Earnings Per Share (EPS) of $3.86 fell short of Wall Street consensus estimates of $4.07.  While that was bad enough from a fundamental perspective, the technical conditions had already begun to deteriorate in the form of a weekly negative divergence on its MACD.  That is a signal of slowing upside price momentum and that, coupled with the fundamental miss, has sent NTES shares reeling today as internet stocks ($DJUSNS) struggle.  Here's the long-term weekly chart on NTES:

In my Trading Places blog article from yesterday, "Brace Yourselves, The Summertime Doldrums Have Arrived", I delved into the internet stocks and pointed out three stocks in the group that were looking at technical troubles ahead and NTES was one of them.  They had no margin for error with their quarterly earnings release and that EPS miss triggered what will likely become a period of intense selling the next few weeks.  I see the 260-265 area being tested quickly and then we'll see if price support there holds.  If not?  Next stop would be 210-215.

Happy trading!

Tom

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Tom Bowley
About the author: co-founded Invested Central in 2004 and served as the site's Chief Market Strategist for more than 10 years. Invested Central provides stock market education and guidance for those interested in making their own financial decisions. During his tenure at Invested Central, Tom co-hosted Market Open LIVE, a national radio broadcast that covered many of the largest markets across the U.S. In addition, he has spoken at various conferences throughout the United States and Canada and has taught thousands of traders across the globe how to trade equities more wisely with an emphasis on managing risk and intermarket relationships. Learn More
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