Ferrari Revs to Highs Despite Earnings Miss - Here's the Trade

Ferrari stock is rallying to highs even after the car maker missed earnings and revenue expectations. Here's how to trade the stock now.
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Shares of Ferrari  (RACE) - Get Report are racing higher on Monday, at this writing up 3.4%.

While the gains may not seem impressive at first glance, notice that the rally is sending the stock to records. Further, it comes despite the company missing on earnings and revenue expectations.

Earrings of 0.04 euro missed analysts’ expectations of 0.08 euro, while revenue of 571 million euros slumped more than 40% and missed estimates by more than 15 million euros.

On the plus side, Ferrari sharpened its full-year revenue outlook to 3.4 billion euros, compared with its prior estimated range of 3.4 billion to 3.6 billion euros. The company also lowered its earnings outlook for the year.

While Ferrari hasn’t run like Tesla  (TSLA) - Get Report, it’s also quickly found its way back to highs, unlike General Motors  (GM) - Get Report, Ford  (F) - Get Report and others. Can the rally keep on going? Let’s look.

Trading Ferrari Stock

Daily chart of Ferrari stock.

Daily chart of Ferrari stock.

A glance at the weekly chart highlights the strength in Ferrari stock. Even before Monday’s rally, the stock had been moving nicely.

On the week that equity markets rolled over due to the coronavirus selloff, Ferrari shares were breaking out to highs. Unfortunately, the stock was also caught up in the selling. On the plus side though, shares dropped just 29%, outperforming the broader market.

When an automaker outperforming the market at a time when investors seemed to be dumping stocks without discretion, that's an impressive feat. 

It’s also impressive to see the stock rallying on Monday on what some would consider bad news - that is, missing on earnings estimates and trimming guidance.

All this price action points to momentum for the bulls. 

On the upside, let’s see if the shares can get to the 123.6% extension, up at $192.04. Above that puts the 138.2% extension in play at $199.75 as well as the psychologically relevant mark of $200.

On the downside, investors may prefer to buy the dip and that’s fine, too. This stock has been riding its 10-week moving average higher, without actually giving it a real test over the past 12 weeks.

I suspect that the first notable pullback into this mark will result in a buy-the-dip response from the bulls — provided the market isn’t melting down. A retest of the $175 breakout zone may also trigger a similar reaction.