The backdrop for these earnings reports is a stock market that remains under the cloud of a ValuEngine valuation warning with 75.8% of all stocks overvalued, 42.5% by 20% or more. I still give the retail-wholesale sector an overweight rating, but the sector is 23.6% overvalued.
These stocks will be sensitive to earnings disappointments given the deterioration of the underlying technicals for the overall stock market.
The Nasdaq ended last week below my monthly pivot at 3663, which is just one negative technical divergence. However, the Nasdaq is also the only major average that did not end last week below its five-week modified moving average at 3573.
Dow industrials and Dow transports are the only major averages with 12x3x3 weekly slow stochastic readings declining below 80.00. The others remain overbought.
To confirm the early-August highs as cycle highs all five major averages need to be in sync technically. Weekly closes need to be below the five-week MMAs at 15,306 Dow industrials, 1666.8 S&P 500, 3573 Nasdaq, 6426 Dow transports and 1026.03 Russell 2000 with all momentum readings declining below 80.00. Dow industrials and Dow transports ended last week with negative weekly chart profiles.
The downside this quarter and into year end are my quarterly and annual value levels at 14,288/12,696 Dow industrials, 1525.6/1348.3 S&P 500, 3284/2806 Nasdaq, 5348/5469 Dow transports, and 863.05/860.25 / 809.54 Russell 2000.
With the S&P 500, Nasdaq and Russell 2000 not yet negative, it will take at least another week of lower markets to confirm the early-August highs as cycle highs. If all five major averages do not shift to negative on their weekly charts the upside is to my semiannual risky levels at 16,490 Dow industrials, 1743.5 S&P 500, 3759 Nasdaq, 7104 Dow transports and 1089.42 Russell 2000.
Among the eight earnings previews, all are overvalued, four by more than 25%. One stock is down 44.9% over the last 12 months and six have gained by more than 20% from a year ago. Two are projected to report negative quarterly results and two are trading below their 200-day simple moving averages. The other six are above their 200-day simple moving averages reflecting the risk of a reversion to the mean.
Reading the Table
OV/UN Valued: Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.
VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.
Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.
Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.
Value Level: Price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.
Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.
Risky Level: Price at which to enter a GTC limit order to sell on strength.
Best Buy ($30.37) set a multi-year high at $32.17 on Aug. 14. My semiannual value level is $28.78 with a weekly risky level at $32.80.
Barnes & Noble ($17.54) set a multi-year high at $23.71 on May 13 then fell to $14.96 on June 25. My weekly value level is $16.21 with an annual pivot at $17.58 and monthly risky level $19.63.
Bob Evans Farms ($47.74) set a multi-year high at $52.48 on Aug. 1. My semiannual value level is $44.46 with a semiannual pivot at $48.72 and monthly risky level at $52.51.
Home Depot ($75.38) set a multi-year high at $81.56 on May 20. My semiannual value level is $74.17 with a monthly risky level at $80.39.
JC Penney ($13.40) set a multi-year low at $12.34 on Aug. 9. My quarterly value level is $13.00 with a weekly pivot at $14.80 and monthly risky level at $16.06.
TJX Companies ($50.48) set a multi-year high at $54.29 on Aug. 5. My semiannual value level is $49.79 with a semiannual pivot at $52.25 and annual risky level at $52.67.
Urban Outfitter ($39.74) set a multi-year high at $44.96 on May 20 then traded down to $38.11 on June 24. My annual value level is $37.28 with a quarterly pivot at $39.11 and weekly risky level at $43.53.
Williams-Sonoma ($58.30) set a multi-year high at $61.38 on Aug. 5. My quarterly value level is $50.79 with a monthly pivot at $58.28 and weekly risky level at $62.59.
At the time of publication the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.