Earnings Edge: These 5 Stock Giants Will Breakout — or Breakdown

Earnings Edge: These 5 Stock Giants Will Breakout — or Breakdown

Editor’s note: Welcome to our newest feature: Earnings Edge! Chad Shoop, a chartered market technician for Banyan Hill Publishing, is always watching earnings closely. Each week, he will give you a handful of stocks that are poised to breakout higher after their quarterly reports drop. And he’s starting off with a slew of heavy hitters: GOOG, F, PYPL, QCOM and AMZN.


Last week may have been the busiest week of earnings, but this week is action-packed as well.

Some of the biggest names in the market are set to report in Amazon Inc. (Nasdaq: AMZN) and Google’s parent company Alphabet Inc. (Nasdaq: GOOG).

So far, companies are beating expectations, but the market isn’t pushing these stocks as high as you’d expect.

It looks like investors are a bit cautious to start 2021.

But I have five stocks for you today that are breakout candidates as earnings drop this week.

Here’s what to look for…

5 Earnings Reports to Watch This Week

Stock No. 1: Alphabet Inc. (Nasdaq: GOOG)

Earnings Announcement Date: Tuesday, February 2, after market close.

Expectations: Earnings at $15.89 per share. Revenue at $44.09 billion.

Average Analyst Rating: Buy.

Alphabet, the parent company of search engine giant Google, is set to report after the bell on Tuesday. This is one of the largest companies in the world set to report earnings for the fourth quarter of 2020.

In their last earnings report back in October, it crushed analyst expectations. The news sent the stock soaring nearly 10% and helped create the rally we see below. Since their last earnings report, the stock has trended higher in the rising wedge pattern you see on the chart.

Alphabet Stock Is Stuck in a Wedge Pattern

Alphabet earnings chart

The rising red resistance line is narrowing with the green support line that is also climbing higher.

Alphabet shares won’t be stuck in this wedge forever; a breakout is coming. And earnings can often be the day to deliver a breakout with a surprise move.

Now, the stock popped 9% in their last earnings report that beat expectations. This earnings season, 86% of companies that have reported earnings beat expectations, according to FactSet.

That’s above the five-year average of 74%.

Odds are Google reports better-than-expected results once again. The thing that is different is the market isn’t rewarding those companies that beat as much as usual — this is just my observation from years of studying earnings.

That could set up for a surprise move on earnings. The options market is only pricing in a roughly 3% move, up or down, on the announcement.

Since the stock is trading in the middle of the wedge pattern, a 3% move won’t cause the stock to breakout. But, if it gets a 5% move or better, we could be looking at a break in this formation.

And that will be our cue on where shares are headed from here. Let’s see how earnings shape up.

Stock No. 2: Ford Motor Co. (NYSE: F)

Earnings Announcement Date: Thursday, February 4, after market close.

Expectations: Earnings at ($0.08) per share. Revenue at $33.30 billion.

Average Analyst Rating: Hold.

Ford, an old school automobile company these days, is being left in the dust by revolutionary brands like Tesla.

The company is hanging around, though, with a few tricks up its sleeve to refresh the popular Bronco line and continue to see strong demand for trucks with gas prices staying pretty cheap.

But it’s not the tech haven investors are looking for today.

Shares have been hitting new highs for the last 12 months, but it’s still 80% below its all-time peak back in 1999.

As the stock looks to build on it’s recent push higher, this earnings announcement will be key.

The stock broke beyond the previous resistance level recently, which is now supported by the green level in the chart below.

Ford Stock Is Testing a Key Support Level

Ford earnings chart

You can see how the stock hit a peak before turning lower. It’s now testing the green line. The move lower can spook some investors, but it’s great to see if you are looking for a continued run higher. If the stock can hold the retest of that key level, Ford shares are set to keep climbing.

Based on the options market, traders are looking for a decent move on earnings, around 6.5%.

If it moves to the upside, we have a stock that is just grinding higher.

But, if shares drop 6.5%, it’s breaking back below the green support line and likely heading much lower.

We’ll keep an eye on how things turn out for Ford with this earnings report.

Stock No. 3: PayPal Holdings Inc. (Nasdaq: PYPL)

Earnings Announcement Date: Wednesday, February 3,  after market close.

Expectations: Earnings at $1.01 per share. Revenue at $6.07 billion.

Average Analyst Rating: Outperform.

PayPal has gotten a boost from the online spending boom during the pandemic, but it left investors with some uncertainty after their last earnings report.

Back in November, the company beat earnings expectations thanks to strong demand. Then they lowered expectations going forward by dimming the prospects about the upcoming holiday season.

Well, now we are past the big spending season, and it’s time to see how active consumers were. This week has one of the biggest retailers set to report as well, with Amazon earnings on Tuesday (more on that below).

The dimmed outlook sent shares down 5% on their last report.

This time, the options market is looking for a 4.5% move, which sounds about right.

The stock would need to see a move larger than that for it to be worth trading options around. Investors may simply want to see more proof of the uptrend, though. The stock trended sideways from July through December before breaking out to the upside. Take a look:

PayPal Stock Broke Higher to Close 2020

PayPal stock chart

Shares are retreating now and coming close to testing the green support line at the top. Just like Ford, it’s critical for these stocks to hold those levels. If it fails to do that, look out below. The stock is likely to tumble lower.

A 4.5% drop would easily push the stock below that key level.

So even if the stock doesn’t jump like the market is expecting, anything that keeps the stock above $220 a share will be more than welcomed by PayPal bulls.

Stock No. 4: Qualcomm Inc. (Nasdaq: QCOM)

Earnings Announcement Date: Wednesday, February 3, after market close.

Expectations: Earnings at $2.08 per share. Revenue at $8.30 billion.

Average Analyst Rating: Outperform.

The chip maker is going for three in a row. I’m not talking about earnings beats. They have done that since 2014.

I’m talking about surging on earnings.

Take a look at this chart.

Qualcomm Stock Has Soared After Earnings

Qualcomm earnings chart

You see where the two green trend lines start? That’s where the stock opened after its last two earnings announcements. Those results, which beat expectations, sent the stock soaring double digits on the news.

This time around, the market is pricing in a 4% move.

Clearly, they are not looking for a third-straight rocket higher.

But we still have our key levels to watch. If you are bullish on Qualcomm, which it is hard not to be bullish on semiconductor stocks right now, then you’d like the stock to stay above the green line after earnings.

I don’t care if the stock drops slightly.

As long as it is above the green support line, it’s a bullish sign.

Who knows, maybe we get another double-digit rally, and it’s off to the races for Qualcomm once again.

Stock No. 5: Amazon (Nasdaq: AMZN)

Earnings Announcement Date: Tuesday, February 2,  after market close.

Expectations: Earnings at $7 per share. Revenue at $120.23 billion.

Average Analyst Rating: Buy.

Probably the single biggest winner during this pandemic is Amazon. Everyone, including me, has been ordering stuff from their app constantly.

And I’ve saved the best for last.

It will be the key stock to watch. If you are worried about the economy, or consumer spending, or the holiday shopping period, Amazon is the one stock that covers it all.

A solid earnings report and it has the power to shift the whole sentiment on the market.

This earnings event is even more interesting because the stock is literally on the verge of a major breakout, one that could send the stock on a 20% run.

Amazon Stock Is Positioned for a Huge Run

Amazon stock chart

Shares have formed a classic wedge pattern since July. Shares peaked at the end of August. Since then, a clear resistance level and support level have been converging steadily.

Amazon shares are trading just over 3% away from both levels.

That’s not a crazy move for a stock this widely covered. And right now, that’s all the traders are pricing in – just a 3% move.

We could easily see this stock surprise, up or down, and produce a much bigger move than 3%.

This is the number one stock to watch, not just this week but this earnings season. It’s become such a bellwether for the economy during the pandemic that it will tell us more in one day than all the economic data released over the next several months.

Stay tuned to see how Amazon stock, and our economy, did during the peak holiday period.

Chad Shoop is a Chartered Market Technician and options expert for Banyan Hill Publishing. He is the editor of three leading newsletters: Quick Hit Profits, Automatic Profits Alert and Pure Income. His content is frequently published on Investopedia and Seeking Alpha. Check out his YouTube Channel to see his latest market insights.

Click here to join his free newsletter, Weekly Options Corner.

The post Earnings Edge: These 5 Stock Giants Will Breakout — or Breakdown appeared first on Money & Markets.

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