Thursday Earnings: AZN, DEO, AAL
Faraday Research | Jul 27, 2017 11:37AM ET
Equity Analysts are Thursday the ‘day from hell’ as 14 FTSE 100 companies report. Let’s take a look at the three most interesting charts from those we've heard from.h3 Astrazeneca (NYSE:AZN)/h3
‘Day of hell’ does not do justice for what we are seeing with AstraZeneca. The shares gapped 15% lower at the open and at the time of writing, prices were down over 16%. A close at this level would see over £1.3bln knocked off the company’s value — not a great day for management, to say the least.
First, we note that AZN’s Q2 results have taken a back seat today. This morning’s plummet lower is all about disastrous late stage trial results from AZN’s lung cancer drug, Imfinzi. The trial results showed that when using Imfinzi in combination with other drugs, patients fared worse than the control group which were treated with the standard platinum-based chemotherapy. Although management put a brave face on it, investors were less than impressed.
Looking at the price chart, we note that Thursday’s gap lower sees a decisive bearish break of a longer-term ‘ascending channel.’
This bearish break of a well-established ascending channel represents a clear change in market structure and firmly indicates that selling pressure is strong. With shares having a tendency to trend in line with momentum moves follow earnings surprises, there is now an increased probability that a downtrend will form. At the very least, today’s move negates AZN’s longer-term bullish price structure.
h3 Diageo (NYSE:DEO)/h3Having discussed the biggest loser of the day, let’s move on to the biggest winner.
Following a bumper full-year earnings report, Diageo’s shares gapped higher at the open and currently are up over 6%. With management reporting a 25% rise in operating profit and organic sales growth across all regions, announcing a £1.5bln share buy-back scheme and aggressively upping the margin target and dividend, it’s not hard to see why the shares gapped powerfully higher at the open.
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However, more of note, is that the shares have gone on to make new-trend highs following a strong intraday rally. Were prices to close above the June 20 swing high, this would be a hugely bullish sign. We also highlight that the highs of the mid-June consolidation range are likely to act as an interior support level going forward.
Assuming that prices hold at their current levels, this would lay the foundations for Diageo’s longer-term uptrend to kick back into gear. In this scenario, we will look to capture the ‘second leg higher’ by entering a long position following a period of price compression or mean reversion.
h3 Anglo American (LON:AAL)/h3The other stock gabbing our attention today is Anglo American. Having twice written about how the mining sector’s longer-term uptrend is now back in play, AAL’s H1 update further supports this notion.
Key takeaways from the earnings update were: a first half net income of +$1.4bln (compared to a loss of $813mln the year prior), cost cutting well ahead of target, lower than expected net debt (net debt is $6.2bln, already below the full year target of $7.0bln) and a 14% rise in revenue.
Unsurprisingly, investors reacted positively to the news. Prices gapped higher at the open and, as I write, the shares are up just under 4%, maintaining today’s positive gap.
Today’s price action sees the shares burst further above the upper Keltner Channel, offering clear evidence that buying demand is very strong. Notably, it also means we have yet more evidence that AAL’s retracement phase has been exited.
Having seen prices decisively breakout from a prolonged retracement channel and short-term momentum once again realign with the longer-term uptrend, the probabilities now favor a move higher. Although prices never move in a straight line, the highly bullish technical backdrop means we are eyeing the previous trend highs of 1443p.
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