ast week saw very strong but also very mixed reactions to earnings from technology companies. Apple reported its first sales decline over year in ages, which was not a complete surprise, but Amazon.com missed badly on earnings which was a big surprise.
The charts below show how AAPL and AMZN stocks were hit hard on the day after their reports came out, but interestingly, neither stock took out the lows they set earlier in the month. This suggests that the big selloff in early January more than priced in disappointing results and guidance for many companies, not just in the tech sector.
On the other hand, strong earnings and guidance from Facebook and MicroSoft were well rewarded by the street. Facebook did particularly well, capitalizing on strong earnings and a broad market resurgence to finish the month at a new high. Microsoft, having reported later in the week, staged a nice upswing within its existing channel.
Preview of this week’s earnings Reports:
Google Feb 1 AMC
Sales $16.98B 17.2% growth
Forward P/E 21.45
Signals are mixed heading into Google’s earnings report, so we could see significant volatility on the news. Shares have been trending higher for the last six months but since October a head and shoulders top has been forming that peaked in a double top near $780 at the end of last year.
The January correction took the shares back to trend, and they didn’t stay below $700 very long having filled in a gap, which suggests their underlying uptrend remains intact. More recently, the move back above $740 appears to have called off the right shoulder while RSI breaking out of a downtrend and clearing 50 signals momentum turning upward.
The recent pullback suggests that as with other technology companies, expectations for the quarter and guidance have eased back. Still, depending on how the news turns out, a move to retest $780 or $700 following the report appears possible.
Yahoo Feb 2 AMC
Street $0.12 (59.0%) growth
Sales $948M (19.6%) growth
Forward P/E 51.2
Yahoo! shares are close to the lowest they’ve been since August 2013. A lot of the value created for the company over the past few years has rested with its stake in Chinese internet retailer Alibaba. After plans to spin-off the Alibaba stake into a standalone entity ran into tax problems with the IRS, Yahoo! tabled a potential new strategy to sell off other assets, including its core internet business.
Yahoo cut fourth quarter revenue guidance in October and shares have headed lower since. There is now a general belief that CEO Marissa Mayer’s turnaround efforts are not making any headway and the longer the current strategy is allowed to carry on, the more potential shareholder value will be squandered.
The chart below shows the share price recently rebounded just above $27, near the low reached in October.
Should the earnings call focus on the management turnaround effort, shares could quickly head south of $27.30. However, any talk of selling either the core internet business or the Alibaba stake could be enough to send shares back towards the November peak at $36.
Weekly candlestick chart for Yahoo!
Source: CMC Markets, 26/1/2016
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This commentary is based upon technical analysis. Technical analysis does not consider any of the fundamentals of an underlying company, and as such is inherently uncertain and should not be the only factor considered by an investor in making an investment decision.
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