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.

 

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The weekly chart of Papa Johns shows the stock nearly doubling in 2016, before reversing course this year and retracing 38% of its previous rally. In early February, an eveningstar pattern formed and a second eveningstar was completed last week.

The eveningstar is a three-period bearish reversal formation that consists of a large white candle, followed by a small upper- and closing-range "doji' candle, and completed by a large dark candle. It reflects a transition in investor sentiment from bullishness-to-bearishness.

The February pattern marked a lower high in a series of lower highs and lower lows, and this most recent eveningstar pattern may be signaling a breakdown below the 38% retracement support level. The aroon indicator, designed to identify early shifts in trend direction, has made a bearish crossover, and the accumulation/distribution line is tracking below its declining 21-period moving average. The stock is likely to continue to trend lower and, at a minimum, pull back to the 50% Fibonacci retracement level, in the $66 area.

 

Shares of FireEye have been under intense pressure for several years. They peaked at just above $90 in 2014 and earlier this year briefly traded below the $10.50 level. The stock has been able to move up about 55% off its 2017 low, but then began moving sideways in a pattern similar to the one seen on the Herbalife chart. It has broken below its 50-day moving average and is retesting channel support in the $14.50 area. The relative strength index dropped below its centerline and the Chaikin oscillator, a faster version of Chaikin money flow, has moved below its centerline and signal average. The channel breakdown has a price target measured by taking the height of the channel and subtracting it from the support line, and it projects down to the $13.00 area, which would close the May gap.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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