Earnings Should Provide Clarity for 2 Stocks (EXAS & NLOK Analysis)
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Last week’s Earnings Edge stocks were on the move, but neither of them were able to break out.
Instead, they teased us, and then fell right back into their price patterns to look for a breakout on another day.
F5 Networks shares popped as much as 9% after its earnings report, but closed at a point that was within the ascending triangle pattern. It was essentially a false breakout and now we have to wait for the real breakout in the coming weeks.
We saw a similar move for Mohawk. The stock ran up over 3% the day before earnings, teasing a breakout, but then dropped on the actual report. That kept the stock within its descending triangle pattern at least for a few more weeks.
Well, the two stocks we are looking at today are already sitting right at a breakout point, so you can expect even bigger moves from these companies.
Earnings Edge Stock No. 1: Exact Sciences Corp. (Nasdaq: EXAS)
Earnings Announcement Date: Tuesday, after the close.
Expectations: Earnings at a loss of $0.83 per share. Revenue at $430 million.
Average Analyst Rating: Buy.
Exact Sciences, a cancer screening and diagnostic company, is actually holding the highest buy rating we’ve covered. The best we’ve seen before was outperform.
According to S&P Capital IQ, a company gets a buy when its rating is less than 1.5. That’s on a scale with one being a strong buy, and five being a strong sell. Outperform is just above that.
So to see a company like Exact Sciences hold the buy rating, it’s pretty impressive.
17 analysts cover the stock and they give it an average price target of $142 per share.
Shares are trading around $96 today, indicating nearly 50% of upside from here.
Heading into earnings this week, the stock is sitting in a descending triangle pattern that has to have all of these analysts with buy ratings a little nervous.
The EXAS Squeeze
That’s because the triangle pattern is indicating a huge breakout for the stock. We just don’t know which direction yet.
Earnings this week will likely tip the scales one way or the other because it is so close to a breaking point. You see how the red resistance line and green support are nearly touching? All we need to do is see the price break through one of those lines. That’s a signal for a 50% move in that direction in quick fashion.
So keep an eye on earnings this week.
We likely get a big double-digit move, but it will be just the start of an even bigger breakout taking place.
Earnings Edge Stock No. 1: NortonLifeLock Inc. (Nasdaq: NLOK)
Earnings Announcement Date: Thursday, after the close.
Expectations: Earnings at $0.62 per share. Revenue at $695 million.
Average Analyst Rating: Outperform.
NortonLifeLock, the cyber security stock, is trading in a basic wedge pattern.
This is a period of uncertainty for investors. And earnings like we have coming up this week should provide a little guidance.
Investors are not sure to let NLOK run higher, or if they need to stop buying and let it drop much lower.
But an earnings report is all they need to sway their minds on way or the other.
The red resistance line and green support are closing in on each other fast.
If this earnings announcement doesn’t cause a breakout, there will be one in the coming weeks. But odds are, it happens this week.
Once it breaks out, look for an even sharper move in the that same direction. In other words, don’t sell the big move. Instead, jump right in and play it continuing in the same direction.
If we get a drop to the downside, expect more weakness.
And if we get a pop to the upside, look for a continued rally in the weeks ahead.
For those of you who like trading options, both of these stocks are setting up for a decent straddle play, where you buy call and put options at the same expiration and same strike price.
To profit, you just need one of them to move more than the cost of the options combined. Then you can lock in profits on the overall trade.
Both stocks are set to make big moves in the coming weeks, and it’s the perfect time to implement an options strategy like this if the pricing is right.
If you are not familiar with these types of option strategies, you need to follow me and my colleague Mike Carr over at True Options Masters. We cover all kinds of options trades and strategies each day. Click here to sign up for our free e-letter today to get the latest insights we have to offer.
Chad Shoop is an 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.
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Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.