Thursday brings with it earnings reports from Morgan Stanley (MS), Google (GOOG), International Business Machines (IBM), and Microsoft (MSFT). Here’s what their Twitter sentiment charts look like ahead of the earnings reports.
Morgan Stanley warned of consolidation in mid March and then cleared that warning last week. The consolidation warning was cleared near the stock’s upward sloping trend line coming out of the July 2011 lows. In addition, the 50 day moving average is in play. Smoothed sentiment is trying to paint a positive divergence with price, but we’d like to see it continue to diverge (or start to confirm any upward move) before making any calls on the stock. Overall we have a slight bullish bias. If the stock moves higher after the earnings report and the move is confirmed by sentiment it will provide a low risk entry for a trade on the long side. If the stock breaks lower we’ll be looking for a setup near the 200 day moving average.
It took two consolidation warnings from Google before the stock started to pull back in mid March. The second warning was cleared last week as the stock was crossing back above its 50 day moving average. Smoothed sentiment painted a positive divergence with price almost the entire time price was declining. Once the stock started moving higher sentiment confirmed the move. This gives us a bullish bias for GOOG as well, however, no real trade setup exists at the moment. Like MS, we’ll be watching how GOOG reacts to earnings before taking any action.
Microsoft gave a consolidation warning today at the close. Smoothed sentiment has diverged from price for over two months and has now broken the confirming uptrend line. This happens after a failure at a year long down trend line. Not a good sign for MSFT. We suspect that the earnings report will reflect the weakness we’ve been seeing in both price and sentiment. We’d avoid any long trades in MSFT ahead of its earnings report.
Twitter sentiment continues to confirm the uptrend for IBM. People love this stock and will most likely continue to love it going forward. It has caught at its 50 day moving average on the last two consolidations. Traders on Twitter expect this stock to continue to perform well. We’re watching to see how much weakness they report from their overseas operations. As we’ve noted before there is a pick up in Google searches for the word “deflation”. IBM has a large European, Asian, and United States foot print so substantial weakness from IBM could signal that things are worse in the world economy than most market participants suspect. Markets often turn when they believe a poor earnings report has broad implications for the market (rather than being company specific). Of all the stocks we’re watching during earnings season, IBM is very near the top of the list as a bellwether.