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Post-earnings trade setups: HP, Intertek and Severfield

With a host of earnings this week, HP, Intertek and Severfield provide us with interesting trading opportunities from a technical analysis perspective.

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.
HP
Source: Bloomberg

This article takes a look at some of the big movers off the back of recent earnings announcements to try and find stocks that seem to provide a good trading opportunity.

Typically, earnings announcements will drive a shift in market sentiment, allowing for a long-lasting trend to take hold off the back of the announcement. However, we can also see earnings figures drive a stock into particular reversal points, once again providing us with an opportunity to fade that initial market move based on technicals. As such, the aim is to reflect on the impact of these announcements from a technical perspective rather than a fundamental one. After all, the price is expected to reflect all the relevant knowledge that is currently available.

HP

HP looks set to close out a second consecutive month of downside, in what has been a remarkably consistent uptrend over the past two and a half years. This monthly chart below highlights the wider creation of lower highs and largely flat lows. This triangle formation is likely to continue for some time, yet with a bearish shift expected at either the 61.8% or 76.4% retracement levels. Thus far, we have seen a move back into the region between the 200-month simple moving average (SMA) and 61.8% Fibonacci retracement.

Typically, the stochastic move into overbought and back down below the 80 mark can provide us with a good selling opportunity. On this occasion we are seeing some consolidation, yet the bearish divergence seen throughout the past 19 months highlights the drifting momentum that has come alongside this rally.

The weekly chart highlights this break out of an ascending channel formation, with the pair completing the first consecutive lower high and lower low since 2015. We have also seen momentum drop steeply, with the stochastic falling into the lowest level in over a year.

There is still a chance that we could see the wider retracement into the 76.4% retracement at 3238 (highlighted on the monthly chart). However, the signs point towards a potential breakdown from here, with a substantial period of weakness expected to continue the wider triangle formation in place over the course of nearly two decades.

Intertek

Intertek shares have been on the rise over the course of the week. With the price moving through the near-term resistance of 4837, there is a strong chance that we could move into a bullish phase for the coming weeks. The break below 4455 last month does signal a potential period of weakness coming into play after that, yet with the market potentially turning out of its uptrend, any upcoming retracement is likely to be significant in depth.

With that in mind, watch out for a close above 4837 to provide a bullish signal, with a rally into the 61.8% Fibonacci retracement area. That level coincides with the October 2017 peak of 5374, which could form the right shoulder of a head and shoulders formation. Whether this is the beginning of a wider reversal or not, keep an eye out for a potential rally through 4837 to provide a bullish outlook for the coming weeks.

Severfield

Severfield's shares have been regaining ground over the past two years, coming off the back of a huge devaluation which sees the steel specialist trade 87% off the 2007 highs. This past two-year period has seen the company finally starting to regain some ground, and with a positive earnings release this week, there is a strong chance we will see further upside to come.

The rebound from the 200-week SMA points towards the end of this attested retracement, with a move back towards trendline resistance looking likely over the coming weeks. On this timeframe, we can utilise the stochastic as a bullish confirmation signal, with a break back up through the 20 level providing a useful buying opportunity on three of the past four occasions.

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CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

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