In the first edition of our stock picks segment for 2022, we examine three companies that are currently depreciating even though the broader bullish sentiment persists. These corrective price swings are therefore suitable for the implementation of trend continuation trading strategies, particularly given the fact that all three are scheduled to report quarterly earnings by the end of the month.
This is our pick that is most suitable for longer-term investors. The share price of the telecommunications giant has been losing ground since late 2016, mostly because of the troublesome acquisition of Time Warner. But as this deal is about to unwind, the company would now likely be free to start once again appreciating in value.
AT&T is scheduled to post its quarterly earnings on the 26th of January before the market open. The consensus forecasts expect the company to deliver earnings per share (EPS) of $0.76m, measuring a slight increase from the $0.75 EPS that were delivered for the same period last year. This would likely have a positive impact on the share price.
As can be seen on the monthly chart above, the share price recently rebounded from the 61.8 per cent Fibonacci retracement level at 22.87. The latter represents a major support level of historic significance, which is why the downtrend is now likely over.
The price action is currently probing the major support-turned-resistance level at 26.20, which is converging with the middle line of the descending channel. If it manages to break out above the two decisively, the next target for the price action would be the previous swing low at 32.00, followed by the 38.2 per cent Fibonacci at 37.04.
The current set-up on the biggest producer of denim products in the world is suitable for mid-term to long term investments. Levi Strauss is also set to deliver its earnings numbers on the 26th of January. According to the preliminary forecasts, the company would post EPS of $0.40, double the amount that was recorded over the same quarter last year.
The share price is already finding itself at a major support level, and these forecasts for an exceptionally robust quarterly performance are likely to prompt another major rebound in the very near future. This major support is the 38.2 per cent Fibonacci retracement level at 22.57, as measured against Levi's first major uptrend ever.
The company's Initial Public Offering (IPO) occurred in early March 2019. In those early days, the share price was threading around the same level, which is what gives credence to the expectations for the completion of the current correction there. Hence, this major threshold is expected to turn from a resistance with historic significance to a prominent support.
In addition to the fact that the lower limit of the descending channel (signifying the correction) is currently converging with the 38.2 per cent Fibonacci, the ADX indicator has been threading below the 25-point benchmark since the 23rd of August 2021. Given that the Stochastic RSI recently entered into its Oversold extreme, a pick-up in buying pressure is likely to occur soon.
Unlike Levi, Intel's new uptrend may have already begun developing. This makes it more suitable for investors preferring to see quicker results. Currently, the share price is establishing a minor correction within this new uptrend.
The correction is fuelled by the expectations for poor quarterly performance.
The technological powerhouse will release its latest EPS data on the 19th of January after the market close. Intel is expected to report earnings per share of $0.9 compared to the $1.52 that was recorded for Q4 2020. Nevertheless, this is only likely to prompt a consolidation around the major resistance-turned-support level at 52.75 - the 23.6 per cent Fibonacci retracement.
The temporary dollar depreciation also influences the correction, being the result of the weaker-than-expected non-farm payrolls for December. This, however, is not making the price action behave more erratically than usual. This is substantiated by the fact that the price action remains concentrated within the limits of the ascending channel.
Those were established after the initial (false) breakout above the 23.6 per cent Fibonacci, followed by a sizable throwback. Recently, the price action established a similar false breakout above the 38.2 per cent Fibonacci at 55.76, which is currently being followed by a throwback to 52.75.
Once the share price likely finds the necessary support around the 23.6 per cent Fibonacci, the reinstated uptrend would likely head towards the previous swing peak at 58.30. The next target would be the 61.8 per cent Fibonacci at 60.62.