Earnings Edge: Don’t Bet Against These 2 Trends (ACN & NKE Analysis)

Earnings Edge: Don’t Bet Against These 2 Trends (ACN & NKE Analysis)

Last week, the Federal Reserve shook up markets with its adjusted outlook for interest rates.

After citing rising inflation, the Fed bumped up their date for an interest rate hike by a year, from 2024 to 2023.

Investors watch the Fed like hawks because rising interest rates slow the economy.

As companies have to pay more to borrow money, growth slows and some opportunities worth borrowing money for today aren’t feasible with rising rates.

But Fed movements in the market are broad and not specific to individual companies.

That’s why earnings season is so exciting, wild moves are simply the market reacting to how well or how badly a company is doing compared to what preceding events led them to think.

Companies have a chance to reset those expectations, again for better or worse and shed light on the impacts of rates or inflation on their operations.

Now, a lot of traders love betting on the move before earnings. It’s the spectacle of the event that captures all the attention.

But I want you to check out this presentation to see why I flipped that earnings approach upside down and still generated sizeable profits after a company reports earnings.

Click here to watch it today.

This week, we have two stocks right off my list of the Winning 75, which means they have clear trends to trade after they report earnings if they hit my parameters. And these are stocks that investors will be watching closely when they report quarterly numbers.

Let’s break down Accenture PLC (NYSE: ACN) and Nike Inc. (NYSE: NKE) for today’s Earnings Edge.

Earnings Edge Stock No. 1: Accenture PLC

Earnings Announcement Date: Thursday, before the open.

Expectations: Earnings at $2.24 per share. Revenue at $12.79 billion.

Average Analyst Rating: Outperform.

Headquartered in Dublin, Ireland, this tech consulting and outsourcing company has made a few splashes in recent weeks.

It acquired product and application lifestyle management consulting services from Japanese consulting company DI Square — allowing it to expand its automotive and other manufacturing in Japan. Then it acquired — through a buyout — engineering consulting and services firm, umlaut. The umlaut buyout will help strengthen Accenture’s goal of providing engineering and manufacturing firms a complete ecosystem to combine digital with traditional services.

The latest two acquisitions are part of a bigger acquisition spree totaling more than 20 companies since 2017.

It’s helped position Accenture as a leader in global services and led the stock to be a juggernaut steadily climbing for decades now.

With the large bets on more digital services and consulting, this earnings report will help lay out how Accenture’s latest acquisitions fit its agenda.

Even a great acquisition can come under fire for what they paid for it.

With these concerns, along with the normal volatility around earnings, this is set to be a wild earnings report.

The options market is only pricing in a 2% move this week, which is nothing major. With earnings on Thursday, it could see a much sharper move for the stock, creating value in either the put options or call options.

As we break down the price chart, the stock is stuck in a rising wedge pattern.

ACN Is Stuck in a Rising Wedge

ACN earnings chart

The rising resistance in red and rising support in green highlight that this is a rising wedge pattern.

With shares trading closer to the green support line, I like the odds of it holding up on earnings. I wouldn’t bet against this trend.

Stock No. 2: Nike Inc.

Earnings Announcement Date: Thursday, after the close.

Expectations: Earnings at $0.51 per share. Revenue at $11.1 billion.

Average Analyst Rating: Outperform.

Retail giant Nike reports after the close on Thursday, and this one always has a lot of anticipation.

It reports in between the main earnings season, covering March, April and May instead of the typical second quarter of April, May and June.

With two of the three months included for the typical second-quarter reports, it gives us an early look at how consumers are reacting to inflation.

As a retail stock, inflation hits both ways.

At first, investors are happy to pay higher prices passed downstream from the manufacturing lines. But, eventually, inflation can run so hot that consumer spending slows down dramatically.

That’s not a point we want to get to.

Right now, we shouldn’t be close. And I expect Nike to have a solid report this week as consumer spending remains strong.

Looking at its price chart, it is trending in the opposite direction as Accenture, with a falling trend channel.

NKE’s Downward Trend

Nike earnings chart

This has a falling resistance in red and falling support in green trending along at about the same slope, making it a price channel instead of a wedge pattern.

The trend is clear — the stock is headed lower.

I’m not a fan of betting against the trend, so I wouldn’t look for a pop from Nike this week.

Options traders are looking for a 2.6% move this week.

With the stock stuck in the middle of this downward price channel, this is one stock I wouldn’t touch ahead of earnings.

I’d wait to see what they report and use that price action to take a trade on the stock.


Chad Shoop is a Chartered Market Technician and options expert for Banyan Hill Publishing. He is the editor of three leading newsletters: Quick Hit ProfitsAutomatic 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.

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