Jacobs Engineering Gets Drilled

Jacobs Engineering (JEC - commentary - Trade Now) is off over 10% in early trade following the company's pre-open fourth-quarter earnings report. Investors are not pleased with Jacobs' EPS miss (63 cents vs. analysts' consensus estimate of 68 cents) and are hitting the stock with extremely heavy selling pressure.

The stock began the day with a huge breakdown gap that dropped it below its 200-day moving average. Volume right on the bell was very heavy and remained that way throughout the first hour, pushing shares below $40.00 for the first time since late July. Selling pressure, which is already running near triple the stock's average, will match the heaviest levels of the year by the close.

JEC Daily (NYSE) Jacobs Engineering Group TradeStation

The major breakdown today in Jacobs has left behind a very heavy area of overhead supply. The stock is now trading below a trendline that had been supporting the its rally off the March lows.

I expect Jacobs to continue to struggle over the next few weeks now that the stock's 200-day, as well as trendline support, have been violated on extremely heavy volume. An initial downside target would be the summer lows set in mid July just above the $36.00 area. On the upside, the $42.00 area will likely hold back a recovery rally as this breakdown progresses. A light-volume rally back up to this heavy resistance area would offer a low-risk shorting opportunity. I do expect more downside in the form of a weak downgrade-inspired open tomorrow before the stock can muster a bounce.

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At the time of publication, Morrow had no positions in the stocks mentioned.

Gary Morrow is president of Yosemite Asset Management, LLC, a registered investment advisory firm in San Luis Obispo, Calif. He manages individual accounts through Charles Schwab and runs a long/short hedge fund. Prior to forming Yosemite, Morrow spent 12 years on the floor of the Chicago Mercantile Exchange trading foreign currency and interest rate futures. He holds a bachelor's degree in economics from Ripon College.