Cybersecurity company FireEye (FEYE) , Herbalfe (HLF) , the nutrition and vitamin supplement supplier, and Papa Johns (PZZA) , the world's third-largest pizza-delivery chain, report earnings after the close Tuesday, and they all have one thing in common: weak-looking charts. They are either undergoing consolidation after an extended period of strength, or in the case of Papa Johns, have made the transition from uptrend to downtrend.
An earnings surprise will trump the best fundamental or technical analysis, so a confirmation is required before making a trade, but watch these candidates for further downside action after they report.
The daily chart of Herbalife illustrates the stock's 50% advance in the first half of this year. That rally was followed by a period of sideways consolidation that formed a horizontal channel pattern between triple-top resistance in the $74 area and support at the $68 level. Earlier this month, the stock dropped below its 50-day moving average and then accelerated lower, taking out channel support. Daily moving average convergence/divergence is overlaid on a weekly histogram on the oscillator, and is moving below its centerline on both time frames. This is a reflection of declining positive price momentum and short-term trend direction.
Chaikin money flow has been declining as the channel pattern was developing and has moved well into negative territory. This suggests the stock is undergoing heavy distribution. The channel breakdown has a downside price target measured by taking the height of the channel and subtracting it from the support line. It projects down to the $62 area and would close the May gap.