Well, the rotation I talked about last week is playing out as expected.
These beaten down tech-related stocks like DocuSign Inc. (Nasdaq: DOCU) can’t escape the sell-off.
The crazy thing is that after DOCU dropped 25% on earnings last Friday, it didn’t even make a new low for the past 30 days.
That’s the kind of volatility that is a trademark of bear markets. It’s not like what we saw in 2020, where we had a V-shaped recovery. This is a lingering bear market that gets more brutal just when you think it’s going to let up.
Some good news is that these volatile markets can be just as beneficial to the upside. We’ll see some wild moves higher. They just haven’t happened quite yet.
This week I have two giants in their respective industries to look at — The Kroger Co. (NYSE: KR) and Oracle Corp. (NYSE: ORCL).
One thing to watch: Both of these companies are down just 15% and 30% from their peaks as I write this. They haven’t seen the full force of this market environment just yet.
That could all change this week with earnings.
Here’s what to expect…
Earnings Edge Stock No. 1: Oracle Corporation (NYSE: ORCL)
Earnings Announcement Date: Monday, after the close.
Expectations: Earnings at $1.38 per share. Revenue at $11.6 billion.
Average Analyst Rating: Hold.
Oracle, the enterprise tech stock, is off 30% from recent highs. It’s already in bear market territory.
In this market, it’s hard to be bullish on anything. That’s especially true for tech stocks that rely on future growth. Even a giant like Oracle needs good economic conditions for investors to have an appetite for the stock.
Right now, this stock is in a downtrend. I don’t expect that to change this week.
ORCL’s Downward Trend
What alarms me is the shaded candlestick on the chart is blue … and declining.
These colors come from my Profit Radar, and they tell me where the stock is relative to the rest of the market. Blue is improving, next up would be leading (green), which is good news.
But whenever a stock moves lower in the improving section, it’s not a good sign.
So that gives me concern heading into earnings in this weak market.
It looks like we will get more weakness in the stock before things turn higher.
Earnings Edge Stock No. 2: The Kroger Company (NYSE: KR)
Earnings Announcement Date: Thursday, before the open.
Expectations: Earnings at $1.26 per share. Revenue at $42.8 billion.
Average Analyst Rating: Hold.
From a tech stock to a consumer staple…
Kroger is a company that no matter what is going on, there will always be some foot traffic buying up groceries in its stores.
You have to eat to live. That’s why these stocks tend to hold up better than most.
KR is only down 15% from its recent highs as I write this.
I expect these types of stocks — consumer staples and safe-haven assets — to get hit hard next.
This is the rotation I talked about. The tech stocks are still getting trounced, but consumer staples are starting to feel the pressure.
I think the best example of this is Target Corp. (NYSE: TGT).
Once a retail success story, Target turned into a nightmare overnight on earnings in May, with new reports of slashed prices to move inventory.
That was part of that transition as these stable companies take a beating.
Kroger may be next.
KR Has Held — for Now
KR’s giving me that same ominous sign as Oracle on its chart.
The stock is in the improving quadrant, but shares are headed lower.
This usually leads to strong selling pressure that’s likely to get a jump-start on earnings this week.
While I’ve been looking for a short-term bear market rally, we can’t ignore the overwhelming weakness that is playing out in so many stocks right now.
It makes it hard to be bullish on anything at the moment.
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