Happy Thursday, Traders!
An Earnings Wrap Up
This week, there were a few core tickers reporting earnings and a lot of trash stocks. The trash stocks are the stocks that have been taken out to the dumpster over the last year or so. A lot of those stocks have high short interest. As such, I had my eye out for some short squeezes, while watching the likes of Walmart (WMT), Home Depot (HD), Palo Alto Networks Inc (PANW), and Nvidia (NVDA). Most short squeezes didn’t materialize, but remember, those are setups. The setup requires the catalyst. The catalyst is earnings, and if earnings don’t result in a short squeeze, then we hold on to the setup and wait for the next catalyst.
So, how did this week’s reports impact the stock market?
Walmart specifically noted that they were seeing continued impacts of high inflation, as consumers continue shifting toward purchasing lower priced necessities instead of higher priced discretionary goods. Home Depot also noted this impact, in addition to the fact that lumber prices and the housing market downturn have negatively impacted their businesses. Both companies reported muted yearly outlooks.
The move in Home Depot specifically put a significant drag on the market, as it sent consumer discretionary stocks lower along with housing stocks. HD fell -3.9% overnight and then kept falling, breaching the 200 SMA to the downside before it stabilized. It also took Lowe’s down with it. But, I’ll note that LOW is almost always more robust than HD.
Nvidia and Palo Alto Networks were the shining stars of the week, as both reports were fantastically received. NVDA gapped up 12.9% and kept going, and PANW gapped up 9.3% and stabilized. I picked this one on Charles Payne’s show on Monday.
Palo Alto Networks
So, what is to come next week?
Next Week: An Earnings Preview
Next week, I have a few companies on my watchlist, including Dollar Tree (DLTR), Salesforce (CRM), Broadcom (AVGO), Costco (COST), Lowes (LOW), and Marvell Technology Inc (MRVL).
Check out my Earnings Hot Zone stats on a few of these names below.
Keep in mind what I’m looking for are patterns. Notice any patterns below?
Costco is reporting earnings on March 2nd, after market close. I like Costco here because it has a combination of bullish technical patterns, including a weekly and daily squeeze. Additionally, Costco has been relatively consistent regarding EPS estimates on the fundamental side. They have also continued increasing their dividend, which is now at $0.90. I will note that Costco tends to fall slightly after earnings, but in my opinion, that is largely because Costco has specific margins they have to work with, which is why customers love them so much. The low prices mean that Costo can’t necessarily earn extraordinarily high profits on their products, so most of their growth tends to come from customers buying more products or from more customers signing up for memberships. They also generally do well with seasonal items.
So, what does all of this mean? I like Costco long-term, especially because of the weekly squeeze. Ultimately, I think it will trade back at all-time highs, and then onto $668. However, just note that on earnings, the moves are usually pretty muted.
Look at Costco’s earnings stats over the last 12 quarters below.
I like the technical setup on AVGO as well. AVGO had a breakaway gap last quarter, in which it gapped up 3.7% post-earnings and didn’t come back down to fill that gap. Now, it has a daily squeeze going into the earnings report. This company has crushed EPS estimates by excellent margins for the last eight quarters in a row. It’s also done a fantastic job retracing the fall from all-time highs. It’s also sitting nicely on the 50 SMA, a critical zone of support and nice bounce spot.
What is on your earnings watchlist next week? I like both of these stocks, as they are fundamentally strong companies that will ultimately prosper despite the current, underlying macroeconomic difficulties. I’ll be on the lookout for trades and investment opportunities alike.