Investing Ahead of Earnings: Johnson & Johnson and Coca Cola

NEW YORK (TheStreet) -- It's still early in first-quarter earnings season, but it looks like companies that beat analysts' earnings estimates and spike higher are going to have a hard time holding on to those gains.

For example, Wells Fargo (WFC) beat EPS estimates before the opening bell Friday and initially traded higher but later faded to its 50-day simple moving average.

Many companies have taken advantage of the low cost of borrowing and have increased debt significantly. I read a story over the weekend that stated that corporate debt is up $1 trillion since the end of the Great Recession. Corporations have used this cash in stock buyback programs, which increases their earnings per share.

Another positive catalyst (at least initially) for stocks has been the announcement of additional cost-cutting. For example, Family Dollar (FDO) missed EPS estimates by 10 cents a share before the opening bell on Thursday but initially traded higher on the announcement that the discount retailer would be closing 370 underperforming stores. Nevertheless, the stock ended the week by setting a 2014 low.

Today's "Crunching the Numbers" tables cover the four stocks profiled below. Following the profiles, the first table provides the five major moving averages and stochastic readings. The second table provides earnings estimates, value levels at which to buy on weakness and risky levels at which to sell on strength.

Johnson & Johnson (JNJ) ($96.87, up 5.8% year to date): Analysts expect the health care giant to report earnings per share of $1.48 before the opening bell on Tuesday. The stock traded to an all-time intraday high at $99.38 on April 4 and is above all five moving averages shown in the first table.

The weekly chart is positive but overbought with its five-week modified moving average at $95.21. Monthly and semiannual value levels are $90.72 and $83.76, respectively, with a weekly pivot at $97.31 and a quarterly risky level at $100.42.

Coca Cola (KO) ($38.63, down 6.5% YTD): Analysts expect the iconic beverage company to report earnings of 44 cents per share before the opening bell on Tuesday. The stock traded as low as $36.89 on Feb. 20 and then could not sustain a gain above its 200-day SMA at $39.19 on April 10.

The weekly chart is positive with its five-week MMA at $38.53. Monthly and weekly value levels are $37.80 and $37.73, respectively, with quarterly and semiannual risky levels at $41.28 and $44.67, respectively.

Bank of the Ozarks (OZRK) ($62.58, up 11% YTD): Analysts expect the Southeastern community bank to report earnings of 65 cents a share after the closing bell on Monday. According to FDIC data, the bank has $4.78 billion in assets and still has too much exposure to construction and development loans and commercial real estate loans. The stock set an all-time intraday high at $70.49 on March 20 then closed below its 21-day and 50-day SMAs at $67.25 and $64.63, respectively, on Friday.

The weekly chart is negative with its five-week MMA at $64.30 as the community bank's bubble appears to be popping. Semiannual value levels are $56.87 and $55.30, respectively, with quarterly and monthly risky levels at $63.48 and $67.44, respectively.

Pep Boys (PBY) ($11.89, down 2.1% YTD): Analysts expect Manny, Moe and Jack's automotive retail and service chain to report earnings of 6 cents a share after the closing bell on April 14. The stock traded as low as $11.21 on Feb. 5 and as high as $13.68 on March 21 and is now below its 200-day SMA at $12.45.

The weekly chart is negative with its five-week MMA at $12.50 and the 200-week SMA at $11.62. Semiannual and quarterly value levels are $11.22 and $8.04, respectively, with monthly and semiannual risky levels at $12.45 and $13.72, respectively.

Crunching the Numbers With Richard Suttmeier: Moving Averages & Stochastics

This table provides the technical status for the stocks profiled in today's report.

There are five columns with moving average titles: Five-Week Modified Moving Average, 21-Day Simple Moving Average, 50-Day Simple Moving Average, 200-Day Simple Moving Average and the 200-Week Simple Moving Average.

The column labeled 12x3x3 Weekly Slow Stochastics shows the pattern on each weekly chart with readings of oversold, rising, overbought, declining or flat.

Interpretations: (stocks below a moving average listed in red are below that moving average)

Five-Week Modified Moving Average (MMA) is one of two indicators that define whether or not a weekly chart profile is positive, neutral or negative. The other is the status of the 12x3x3 weekly slow stochastic.

A stock with a positive technical rating is above its five-week MMA with rising or overbought stochastics.

A stock with a negative technical rating is below its five-week MMA with declining or oversold stochastics.

A stock with a neutral technical rating has a profile that is not positive or negative.

The 200-Week Simple Moving Average (SMA) is considered a long-term technical support or resistance and as a "reversion to the mean" over a rolling three to five year horizon. (Even Apple AAPL declined to its 200-week SMA in June 2013.)

The 21-Day Simple Moving Average is a short-term technical support or resistance used by many hedge fund traders to adjust positions. A stock above its 21-day SMA will likely move higher over a rolling three to five day horizon and vice versa.

The 50-Day Simple Moving Average is also a technical support or resistance used by many strategists and commentators in financial TV.

The 200-Day Simple Moving Average is another technical support or resistance and I consider this level as a shorter-term "reversion to the mean" over a rolling six to 12 month horizon. (Even Apple tested or crossed its 200-day SMA in nine of the last 10 years.)

Crunching the Numbers with Richard Suttmeier: Earnings & Where to Buy & Where to Sell

This table presents the EPS estimates including date and before or after the close, and where to buy on weakness and where to sell on strength.

EPS Date is the day the company reports its quarterly results.

EPS Estimate is the earnings per share estimate from Wall Street analysts.

Value Levels, Pivots and Risky Levels are calculated based upon the last nine weekly closes (W), nine monthly closes (M), nine quarterly closes (Q), nine semiannual closes (S) and nine annual closes (A). I have one column for pivots, which is a magnet for the period shown. The columns to the left of the pivots are first and second value levels. The columns to the right of the pivots are first and second risky levels.

Investors who wish to buy a stock should use a good-'til-canceled limit order to buy weakness to a value level. Investors who want to sell a stock should use a GTC limit order to sell strength to a risky level.

At the time of publication the author held no positions in any of the stocks mentioned.

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This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff

Richard Suttmeier is the chief market strategist at ValuEngine.com. He has been a professional in the U.S. Capital Markets since 1972, transferring his engineering skills to the trading and investment world.

Suttmeier has an engineering degree from Georgia Tech and a Master of Science degree from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. He became the first long bond trader for Bache in 1978, and formed the Government Bond Department at LF Rothschild in 1981, helping establish that firm as a primary dealer in 1986. This experience gives him the insights to be an expert on monetary policy, which he features in his newsletters, and market commentary.

Suttmeier's industry licenses include, Series 7 and Registered Principal (Series 24). He has been the Chief Market Strategist for ValuEngine.com since 2008 and often appears on financial TV.

Click here for details on Suttmeier's "Buy and Trade" investment strategy.

Richard Suttmeier can be reached at RSuttmeier@Gmail.com

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