The Long and Short of it: Baker Hughes (NYSE:BHI), General Electric (NYSE:GE), Honeywell (NYSE:HON), Morgan Stanley (NYSE:MS)

October 16, 2013, 10:52 am ET, BY Neal- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Earnings season is just getting underway, and a few very important earnings releases are coming over the next few days.  We have conducted an analysis of these companies in order to provide investors with a summarized earnings analysis (both past and present), but also, and more importantly, a price-based observation that might be better suited for investors who are anticipating price action after earnings are released.

Of course, we already know that stocks sometimes do the exact opposite of what we might expect after earnings.  A stock might fall after it beats estimates, or increase after a miss, so although an evaluation of earnings data is clearly important, a close look at the recent decisions of smart money is as well.

This combination of simple earnings data and price-based analysis can help investors not only understand earnings results, but also anticipate the stock’s move after earnings are released.

The following Companies report earnings on October 18 2013.

Baker Hughes Incorporated (NYSE:BHI) is expected to report $0.73 per share when it reports its third quarter numbers on Friday October 18, before the market open.  The company reported $0.73 a year ago in the same quarter, and posted $0.61 for Q2, which missed estimates by $0.04.  The stock is up 23% YTD and trading near the 52-week highs.  Shares have run up based on strong international revenue growth and renewed confidence in the company's balance sheet. BHI's international operations are performing well and are expected to contribute strongly to EPS in 2014.  Should investors be buying or selling at these levels?

Stock price matters, and right now BHI is trading near the year highs, and close to a test of long-term resistance.  If the stock tests resistance, and remains below resistance, as defined in our real time trading report for BHI, Stock Traders Daily expects lower levels and a test of support.  That would make BHI a sell/short at resistance, with risk controls defined as a break above resistance.

General Electric Company (NYSE:GE) is scheduled to report earnings on Friday October 18 before the market open.  Estimates are for GE to earn $0.35 per share for Q3, which would be a penny less than the same quarter a year ago.  The company has exceeded analyst expectations in three of the last four quarters.  Despite the shaky global economy, the company expects its infrastructure businesses in emerging markets to post 10% - 15% growth in the next five to 10 years. The stock is trading up 16% YTD, and near a 52-week high.  Should investors be buying shares of GE at current levels?

Shares of GE are trading near six-year highs.  Even if GE is able to beat estimates on Friday, it does not mean the stock will continue to rise, as stock price matters.  The stock is currently trading just under the 52-week high, and is close to testing long-term resistance. If the stock tests resistance, and remains below resistance, as defined in our real time trading report, Stock Traders Daily expects lower levels and a test of support.  That would make GE a sell/short at resistance, with risk controls in place if resistance breaks higher. 

Honeywell International Inc. (NYSE:HON) is set to report earnings on Friday October 18 before the open. Estimates are for the company to earn $1.24 per shares for the third quarter, which would be $0.04 better than the same quarter a year earlier.  HON might be well positioned for a global economic rebound, however its stock price may have factored in an economic recovery in the second half of the year.  The stock is up 35% YTD and trading near all-time highs. 

According to the real-time trading report offered by Stock Traders Daily, shares of HON are getting close to a test of long-term resistance, and as a rule we are sellers if resistance is tested (it is not there yet).  If the stock does test long-term resistance, and remains below resistance, we would expect a full oscillation to support, that would make it a sell/short at that level too. However, resistance also acts as our risk control, and if resistance breaks higher, bullish signs would surface.

Morgan Stanley’s (NYSE:MS) third-quarter earnings are scheduled to be released on Friday October 18 before the market open. The company is expected to post a profit of $0.40 per share, after losing $0.55 per share in the same quarter last year.  Big banks are likely to see bond-trading revenue declines in the third quarter due to weak volumes. Morgan Stanley has also recently warned in public comments that they expect trading revenues to be soft.  The stock is up 43% YTD and getting close to resistance. Should investors be buying shares of MS ahead of earnings?

Investors need to be aware of price, and based on the Stock Traders Daily real-time trading report, the stock has been moving closer to long-term resistance, but isn’t there yet. If the stock continues to move higher, and tests long-term support, we would be sellers near resistance. If resistance holds, we would expect a move lower and an eventual test of support. Based on the current price of MS, we would not be buying shares into earnings, and would be watching resistance carefully, as smart money will likely be selling at those levels. 

Navigating earnings can be tricky, sometimes investor’s earnings expectations are correct, but the stocks actually do the opposite of what they think it should have done after earnings, so our opinion based on price can help make investors make more well-rounded and sound investment decisions.

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