NEW YORK (TheStreet) -- The maker of devices used to enter electronic cash payments, VeriFone (PAY) has both positive fundamentals and technicals as the company plans to report quarterly earnings after the closing bell on Thursday.
On Monday, Raymond James upgraded the company's stock to outperform from market perform. On May 22, Imperial Capital initiated coverage on the stock with an outperform rating and a $44 price target.
As a result of positive price movement, the daily chart confirmed a "golden cross" where the 50-day simple moving average moved above the 200-day SMA. In addition, the weekly chart became positive but overbought.
Analysts expect VeriFone to earn 33 cents a share, but to keep a five-quarter winning strike alive the company must beat that estimate. The earnings beats have been by 4 cents to 6 cents each quarter, which raises the bar in terms of upside post-earnings volatility.
With the stock at a 52-week high, an earnings beat may be priced into the stock's technical momentum run-up.
Let's see how the earnings volatility can play out looking at the daily and weekly charts.
Investors not familiar with technical analysis should begin with the notion that a price chart for a stock shows a road map of past price performance, which provides guidance for predicting future share price direction.
Here is how to read a daily chart: There are two moving averages to follow; the 50-day SMA is in blue, while the 200-day SMA is in green.
Here is how to read a weekly chart: This chart shows weekly price bars going back to the beginning of 2007 and thus includes the crash of 2008 and then the bull market for stocks that began in March 2009.
The red line tracks the ups and downs of the key weekly moving average. The green line is the 200-week SMA.
The red line that oscillates along the bottom of the chart is the momentum reading on a scale of 0 to 100. A reading below 20 is oversold, and a reading above 80 is overbought.
A technically positive weekly chart occurs when a stock ends a week above its key weekly moving average with the momentum reading rising above 20.
A technically negative weekly chart occurs when a stock ends a week below its key weekly moving average with the momentum reading declining below 80.
Here is the daily chart for VeriFone:
Courtesy of MetaStock Xenith
VeriFone had a close of $38.93 on Wednesday, up 4.7% year to date, after setting a multiyear intraday high of $39.25 on this day. The stock is 28% above its Feb. 2 low of $30.39.
The stock has been above its 50-day and 200-day SMAs since April 7, and on April 21 the 50-day crossed above the 200-day SMA in a golden cross. The 50-day and 200-day SMAs are $36.16 and $35.35, respectively.
Here is the weekly chart for VeriFone:
Courtesy of MetaStock Xenith
The weekly chart for VeriFone is positive but overbought, with the stock above its key weekly moving average of $37.08.
The momentum reading for the stock is extremely overbought, with a projected reading of 91.23, up from 89.60 on May 29. The overbought threshold is 80.
Note the down trend that connects the high of $58.85 during the week of April 1, 2011, and through the high of $55.82 during the week of April 21, 2012.
Investors looking to buy VeriFone should place a good 'til canceled limit order to purchase the stock if it drops to $37.55, which is a key level on technical charts until the end of this month.
Investors looking to reduce holdings should place a good 'til canceled limit order to sell the stock if the stock rises to $41.19 which is a key level on technical charts until the end of this month.