3 of Tuesday's Weakest Stocks

04/29/2015 10:15 am EST

Focus: STOCKS

Thomas Aspray

, Professional Trader & Analyst

There were quite a few stocks that dropped sharply after their earnings’ news broke, so MoneyShow’s Tom Aspray takes a technical look at three stocks hit hardest to determine if there were any warning signs ahead of time.

The early morning profit taking on Tuesday was well contained as most of the major averages dropped below near term support at their rising 20-day EMA before closing higher. Small-cap stocks did the best and the positive market internals pushed the S&P 500 A/D line to another new high.

The Nasdaq Composite was a bit lower and the early release of Twitter, Inc. (TWTR) earnings caused quite a bit of drama in the last 45 minutes of trading. After trading was stopped with TWTR already 6% on the day, it dropped another 21% when the stock reopened for trading.

The sharp drop in consumer confidence caused further concerns about the economy and many are wondering how low the advance 1st quarter GDP will be when it is announced before the opening. Of course, the 2:00PM FOMC announcement may also cause a spike in volatility.

There were quite a few stocks that dropped sharply after their earnings’ news broke, but were there any warning signs from the charts or technical studies before their earnings’ release?

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Chart Analysis: The weekly chart of Twitter, Inc. (TWTR) shows that the downtrend from the late 2013 highs, line a, was broken in early 2015.

  • The resulting rally failed to surpass the October high of $55.99.
  • The tight weekly range over the past few weeks increased the market’s vulnerability.
  • Tuesday’s late low reached the long-term support, line b, that goes back to the middle of 2014.
  • Once the stock reopened, it briefly had a low of $38.38 before closing at $42.27, down 18.2% on the day.
  • If Tuesday’s lows are violated, there is additional support from early in the year in the $34.60-$35.50 area.
  • The weekly relative performance will drop below its WMA this week with resistance at line c.
  • The weekly OBV moved through resistance, line d, at the end of March.
  • The rally did not surpass the 2014 high.
  • Volume was three times the average on Tuesday but the weekly OBV is still well above support (line d) and its WMA.

The daily chart of Twitter, Inc. (TWTR) shows that it had been testing its flattening 20-day EMA for the past week before Tuesday’s plunge.

  • The quarterly pivot at $45.83 was decisively broken in Tuesday’s session so Friday’s close will be important.
  • The low on Tuesday dropped to test the daily support at line e.
  • The close was also well below the daily starc- band at $45.75.
  • The daily RS line has been below its flat WMA since April 17.
  • The WMA was tested (see arrow) in Monday’s session.
  • The daily OBV also tested its WMA before Tuesday’s drop.
  • The daily OBV has long-term support at line g.

Next Page: Two More of Tuesday’s Weakest Stocks to Watch

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Stratasys Inc. (SSYS) is a $2.61 billion dollar 3D company that announced preliminary first quarter results and guidance after the close on Tuesday.

  • The revenue is expected to be $25 to $28 million lower than expected with negative EPS.
  • The stock was up 4.2% in the regular Tuesday session but is down over 20% in early Wednesday trading  at $40.61 (see arrow).
  • This is below monthly pivot support at $42.77 and quite close to the weekly starc- band at $40.
  • SSYS closed at $103.07 on November 7 which was below its quarterly pivot.
  • The next week, the weekly RS and OBV analysis were both decisively negative (line 1).
  • The weekly relative performance formed lower lows in the middle of 2014.
  • The RS line broke short-term support at line b and was in a solid downtrend by the middle of November.
  • The OBV rallied back to its WMA before dropping sharply by early December.
  • The daily and weekly indicators were solidly negative before Tuesday’s after hours plunge.

Buffalo Wild Wings (BWLD) is a $3.48 billion owner of 491 restaurants in the US and Canada.

  • They reported just a 3% gain in net income for the 1st quarter as the costs of wings rose 41% more.
  • The stock is trading near $165 early Wednesday (see arrow).
  • This is below the long-term support from the mid-2014 highs, line a, in the $168 area.
  • The weekly starc- band is now at $162.18 with the 50% retracement support at $159.34.
  • BWLD has been below its quarterly pivot at $183.63 for the past two weeks.
  • The weekly RS line did confirm the new high in February but dropped below its WMA at the end of March.
  • The OBV broke out to the upside in early November as resistance at line f, was overcome.
  • The OBV has been able to hold above its WMA as BWLD declined for the past six weeks.
  • The resistance is now heavy in the $175 area.

What it Means: The recent tight range in Twitter, Inc. (TWTR) made it vulnerable and the early news of its earnings likely made the drop even worse. Often times such news turns out to be an important low and those who bought below $40 may end up happy with their positions in the next six months.

The technical outlook for Stratasys Inc. (SSYS) has been negative since last November, so Tuesday’s drop should not have been a surprise. It shows no signs of turning around.

Buffalo Wild Wings (BWLD) looks the best technically from a longer-term basis as it is just back to major support. Once the daily studies have bottomed out, I will be looking for the 50% support level to hold.

How to Profit: No new recommendation.

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