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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.

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.

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.