UNH selloff offers an important reminder about earnings plays
This morning I read UnitedHealth Group's earnings report and purchased some shares at about yesterday's closing price. The report was extremely positive. UnitedHealth not only beat analyst estimates, but also raised its guidance for the rest of the year. Ordinarily these results would get a big pop, but instead the stock promptly sold off to the tune of 2-3%.
This offers me an important reminder about something I knew, but had forgotten: it's not just the content of the earnings report that matters, but also the recent price action.
UNH had gained steadily for 2 months and popped 5% a few days before earnings, which implies that investor expectations were higher than analyst estimates. In fact, it's possible that the earnings result leaked early, and that this was a case of investors buying the hype and selling the news. Regardless, UNH was overbought and sitting at strong resistance level going into earnings. It didn't have a lot of room to run, so instead it corrected downward. It's still in an upward channel and should post some gains in the coming week.
By contrast, Chewy's share price has been falling recently, and after hours today it's popping despite missing analyst estimates by 1 cent per share. This suggests that investor expectations for Chewy were lower than analyst estimates. (It also shows how good a job Chewy's PR people did at framing its disappointing results in terms of a positive year-over-year improvement in the press release.)
This offers me an important reminder about something I knew, but had forgotten: it's not just the content of the earnings report that matters, but also the recent price action.
UNH had gained steadily for 2 months and popped 5% a few days before earnings, which implies that investor expectations were higher than analyst estimates. In fact, it's possible that the earnings result leaked early, and that this was a case of investors buying the hype and selling the news. Regardless, UNH was overbought and sitting at strong resistance level going into earnings. It didn't have a lot of room to run, so instead it corrected downward. It's still in an upward channel and should post some gains in the coming week.
By contrast, Chewy's share price has been falling recently, and after hours today it's popping despite missing analyst estimates by 1 cent per share. This suggests that investor expectations for Chewy were lower than analyst estimates. (It also shows how good a job Chewy's PR people did at framing its disappointing results in terms of a positive year-over-year improvement in the press release.)
Comment:
Whoops! It shared an old version of this chart. Here's an updated one.
Comment:
Bearish divergences this week suggest selloff may continue despite the solid earnings.
