Earnings season is here and several market leaders set are
clinging to recent gains stubbornly, seemingly immune to recent
selling in the broad market. Many are tempting buys ahead of
earnings because of their fundamental and technical strength.
Other former leaders are much cheaper than they were six months
ago, tempting investors to buy low and sell high ahead of
It's tricky around earnings season, though, especially during
a time when major averages are in downtrends. Market leaders can
turn tail quickly if results aren't up to snuff. It'll takes
great earnings -- not good earnings -- for growth stocks that
have been moving higher for the last three months to continue to
attract buying interest. It will be a tall order for some.
A healthy market also helps during earnings season.
Unfortunately for the bulls, the S&P 500 and Nasdaq Composite
have been under mild distribution in recent weeks, resulting in
market tide that's flowing negative for now. It's not easy to
make money during earnigns season when institutional investors
are generally selling stock.
Tech stocks look the most vulnerable now, although you
wouldn't know it by looking at Google's (Nasdaq:
As of Friday's close, the stock was only 3.8 percent off its
52-week high. After 12 straight weekly price gains where the
stock gained 29 percent, shares lost three percent last week in
light volume. Institutional investors aren't selling the stock
yet, but Google arguably falls under the category of "priced to
perfection" ahead of its earnings report on Thursday. No doubt
some investors will be tempted to buy the stock ahead of what
potentially could be a big earnings report, but the risk
outweighs the reward here. Headed into Monday, the stock was
extended 13 percent after a technical breakout over $658 in
mid-August. From here a low-volume pullback to its 10-week moving
average ($710) would be a much more palatable entry point.
Meanwhile, there's also a lot of optimism around eBay's
) earnings report on Wednesday. Last week, shares dropped 1.8
percent in higher volume, but selling pressure was muted because
eBay closed near its high for the week. This is another risky buy
ahead of earnings because the stock is too extended from its last
buying area. Its last technical breakout was in July when it
cleared $43.94. A watch-and-wait approach would be best for this
name as well. Similar to Google, eBay looks like it's ready to
consolidate gains for a while.
Finally, Intuitive Surgical (Nasdaq:
) reports on Tuesday. A $594 stock now selling at $494 probably
looks appealing to some, but the medical device maker has been in
a downtrend since May, and its technical picture continues to
look weak. Its 40-week moving average has been a resistance level
for several weeks now. Buying demand for shares isn't nearly what
it was in 2010 when the stock gained 80 percent. Its sluggish
price performance in recent months mostly has to do with concerns
about growth prospects going forward. It's still a pricey stock
valuation-wise, currently selling at 35 times trailing earnings
and 28 time trailing earnings.
Sentiment hasn't been all that great around the
medical-device-maker space lately. Last week, Edwards Life
) cast a pall over the group when it issued a revenue warning.
Also, ObamaCare has a medical device tax that could weigh on
earnings in the group going forward.
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