Today's Hot Topics   ▲  |  ▼

Ominous technical signals seen in these four stocks serve as potential red flags that the companies’ upcoming earnings reports could surprise to the downside.

Even though the majority of reporting companies have beaten analyst estimates, there have been quite a few stocks that have come under heavy selling pressure after their earnings reports were released.

As I discussed in detail on Friday, the stock market still looks vulnerable, and a sharply lower close on Monday would increase the odds of a deeper correction.

Stock index futures are very weak in early trading, so Monday’s close will be quite important. There is a flood of new earnings reports coming this week, and stocks that are acting technically weak are even more vulnerable if earnings disappoint.

As discussed in last week’s Trading Lessons article, there are several technical tools that can be helpful in identifying stocks that may drop sharply in reaction to earnings reports. Here are four stocks that from a technical perspective should be watched closely this week.

Click to Enlarge

Chart Analysis: Netflix Inc. (NFLX) has rebounded over the past week, but the daily chart shows that the flag formation from the January highs, lines a and b, is still intact. NFLX will report earnings after the close on Monday, April 23.

• The 50% support using the rally from the October lows at $98.52 has held so far
• More important 61.8% support is at $90 with the daily uptrend (line c) at $85
• Daily relative performance, or RS analysis, broke support, line e, in early April, which confirmed a new downtrend. There is resistance at line d
• Daily on-balance volume (OBV) is acting even weaker and has dropped below two-month support, line f. It is well below its declining weighted moving average (WMA)
• Short-term resistance is now at $109.70-$111.60 with the daily downtrend, line a, at $118.50

The weekly chart of United States Steel Corporation (X) shows the well-defined downtrend from the 2010 high at $70.95. Since the October lows at $18.85, the stock has been trying to rebound. US Steel will report earnings on Tuesday afternoon (April 24).

• A bear flag pattern appears to be forming (lines a and b), and the rally was not even able to test the short-term 38.2% retracement at $36
• Initial support is at $26.39, which is the April low, and further support stands at $24.78. A completion of the flag formation has a 127.2% Fibonacci price-projection target at $15
• The weekly RS line has stayed in a narrow range, as X has just been keeping pace with the S&P 500. It is below resistance at line i
• Weekly OBV has turned up over the past few weeks but is still below its weighted moving average and the downtrend, line j
• Resistance now stands at $30.60-$32

NEXT: 2 More Stocks That Are Vulnerable to Post-Earnings Selling