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Post-earnings trade setups: Aveva, Babcock and Majestic Wine

With a host of earnings this week, Aveva, Babcock International and Majestic Wine provide us with interesting trading opportunities from a technical analysis perspective.

Majestic Wine
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 trade 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 relevant knowledge currently available.

Aveva

First up is Aveva, which has seen a sharp decline throughout the week. Much of the decline took place on Tuesday, with its earnings release originally providing a boost for the share price. However, that move was short-lived, with the price subsequently tumbling below a critical level of support. This completes a head and shoulders formation that has been playing out over the past five months.

Crucially, we have seen that 2485 support level respected on a number of occasions. With the break we have seen this week, it makes sense to expect this share to deteriorate sharply from here. With the 200-day simple moving average (SMA) providing resistance to any upside in the second half of the week, it makes sense to look for the share price to continue capping any near-term upside.

Babcock International

Babcock has seen a significant amount of volatility this week, providing the most indecisive candle of recent months. Interestingly, with the candle looking set to close out as a hammer, there is a strong chance we will see a rebound from here. The long-term picture highlights a descending trendline in place over the past four years, there is a substantial possibility that this market will begin to move higher from here.

That being said, with a clear downtrend in play since the 2014 peak, a near-term rebound would likely be a retracement rather than a reversal. As such, it looks highly likely that we will see a rebound over the coming months, taking us back into Fibonacci and, potentially, trendline resistance. A long position from here, with a 40-point stop below the low of the day would provide a 2/1 risk-to-reward trade for a move back into the 61.8% resistance level at 720.

Majestic Wine

Majestic Wine has been in freefall this week, coming off the back of a rally into 483 resistance in June. The reversal from that level provided us with yet another signal of a range in play for the company. The price has largely been contained within the 276-483 range for over four years, and with the price having broken below both the 200-week SMA and 373 swing low, a move towards the lower boundary of this range seemed likely.

With the price approaching that 276 support level, a good buying opportunity looks set to come into play. As such, the closer we get to the 276 support level, the better our risk-to-reward will become. For example, buying at 290, with a stop at 265, it is possible to get a 7/1 risk-to-reward trade for a move back into the 465 level.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.