An Earnings Season Pattern

A bad earnings reports can really tank a stock…

And there’s a pattern I’ve identified over the past earnings season.

Once the selling pressure was exhausted, the stocks rallied back up towards their declining 50-day moving average lines about one month later.

It’s not uncommon for stocks that fall hard following a poor earnings report to decline for several days… get wildly extended to the downside… and then bounce back up towards their 50-day moving average lines.

Indeed, there are plenty of recent examples.

Take a look…

These are just a few of the dozen or so examples of this pattern I’ve identified over the past earnings season.

Another Victim

Walgreens Boots Alliance (WBA) is the latest victim of a huge decline on a bad earnings report.

The company missed its revenue estimates. It lowered its forward guidance for earnings and revenues. It announced it was closing a “significant number” of stores.

The company gave investors no reason to own the stock. So… they sold. And, they kept selling for several days following the report.

WBA traded recently for less than $11 per share – its lowest price since 1998.

But here’s how it’ll look if it follows the pattern of companies missing earnings, and jumping back up to its 50-day moving average…

There’s no guarantee, of course, that WBA follows this path.

But Walgreens is a profitable company. Management estimates it will earn at least $2.80 per share this year. That means, at less than $12 per share, WBA trades for over four times earnings.

The stock trades for just 74% of book value, and 0.31 times sales.

So, given the cheap fundamental value of the stock, and given this consistent technical pattern, I like the chances for WBA to bounce back towards $14, or perhaps a bit higher, over the next few weeks.

Best regards and good trading,

Jeff Clark
Editor, Market Minute