Sadly, this last earnings season didn’t turn out to be a particularly good one. Yes, over 75% of the S&P 500 companies beat analyst expectations. Initially, things were looking up.
But in the end, Q3 2019 earnings contracted 2.4% relative to Q3 2018.
That’s less than ideal.
Earlier in the year, analysts got far too pessimistic about where the economy was headed. A recession, or slowdown at the very least, was coming.
So, they decided to set the bar very low for corporations come Q3. And, as we’ve found out over the last few weeks, the analysts seriously overdid it.
However, that’s not to say that the market won’t keep rising. Even though earnings shrunk, companies still expect a strong 2020.
And it’s all thanks to President Trump – the only man who can end the trade war instantly in hopes of securing reelection. Love him or hate him, Trump’s still got the keys to the kingdom.
When push comes to shove, he’ll do whatever it takes to stay firmly rooted in the Oval Office.
So, something interesting started to happen from late October – early November. Companies that posted earnings “misses” ended up recovering. They may have fallen short in terms of EPS or revenues, but that didn’t matter. The long-term outlook for the market suddenly turned bullish, making several stocks appear woefully oversold post-earnings.
Case in point, we have Baxter International Inc. (NYSE: BAX), an American healthcare company that got crushed by panic sellers.
In the weekly candlestick chart above, you can see just how quickly BAX dropped. Earnings hit on October 24th, and in the following trading session, shares plummeted, driving down BAX 12% on the week.
After descending below the lower Bollinger Band (BB), though, conditions improved considerably. Two weeks ago, BAX stabilized.
One week ago, it traded back above the lower BB and into its normal range.
This week, a recovery is mounting.
Best of all, even after all that post-earnings selling, BAX still managed to set a higher low. For long-term shareholders, it was a massive relief. Short-term traders got a gift, too:
A fantastic opportunity to go long on a stock in the middle of an uptrend.
The 50-week moving average is rising, the stochastics indicate that BAX could be oversold, and the current weekly candlestick is trading above the last two.
If BAX moves above the current week’s high (or whatever that is when the weekly candlestick closes on Friday) by a significant amount, it might make sense to go long at $81.25.
Since 2016, BAX has mostly gone straight up. There were a few hiccups here and there, but for the most part, the stock grew consistently to a 150% gain over the last three years.
Now, for the first time in a long time, BAX is giving traders an entry point to go long. Getting a premium stock like BAX at a discount is always worth celebrating.
But only if you’ve got a keen enough eye to recognize these “bargain-bin” setups in the first place.
