Recession fears rose again last week and helped send the Dow Jones Industrials down over 600 points last Wednesday. In a weekend article, it was reported from JPMorgan’s trading model that “seven out of nine asset classes from high-grade bonds to European stocks now show less than a 50% chance of a recession.”
However, the S&P 500 suggested less bullishness as they have a 75% chance of a recession. That was in line with last week’s skepticism about stock market growth so far in 2023. Individual investors don’t look as bearish as last Thursday’s survey by the American Association of Individual Investors (AAII) showed bulls rising to 31% from 24% the previous week. The bearish % also fell by more than 6%.
Many investors look to analysts’ buy or sell ratings to help them determine which stocks to buy or sell. These ratings are regularly published in the financial media, but in my experience, they seem to be based more on fundamental than technical analysis. Since fundamentals often lag price data in my opinion, there are generally very few sell recommendations.
Often stocks that look positive to me on a technical basis get a “sell rating” that can provide a lower open and a good entry point on the long side. A recent segment on financial television piqued my curiosity about how analysts rated two widely traded losers, Microsoft
Microsoft ( MSFT ) reports earnings after the close on January 24thth. According to CNN Business, 40 analysts have a buy rating on the stock, 8 have an outperform rating, while 4 have a hold rating. Of Benzinga, 17 rated it a buy, 5 rated it an overweight, 3 rated it a hold and 1 rated it a sell. Their 12-month high target price is $365, with a low of $212 and a target price of $280.46. MSFT closed Friday at $240.22.
MSFT reached a high of $346.42 in November 2021. At its November low of $212.83 it was down 38.5% from its 2021 high. Although the overall market started the year positively, MSFT has so far failed to move above the monthly pivot of $245.87. The descending 20-week EMA is $244.40 with a monthly pivot of $245.87. A strong close above this level could trigger a rally to the downtrend, line a, at $262.60.
The weekly relative performance (RS) has been in a downtrend, line b, for most of the past year as it has declined 22.7% over the past 52 weeks. The RS has risen over the past two weeks, but is still well below the declining WMA. That’s a sign that the MSFT is still weaker, not stronger, than the S&P 500. It needs to move above its WMA and December high to improve.
Weekly Balance Volume (OBV) turned negative at the start of 2022 (see arrow). It was in a solid downtrend, line c, but briefly moved above its WMA in August. A sign of weakness is that OBV has made a series of lower lows since turning negative.
Tesla Motors (TSLA) reported earnings on Thursday, January 26thth. From CNN Business, 24 analysts rated it a buy, 5 think it will outperform, 12 rated it a hold with 1 outperform, and 3 rated it a sell. The review of Benzinga was similar, with 12 rating it as a buy, 2 as overweight, 4 as a hold and one as a sell. They have a high of $360.00 and a low of $130 with a consensus target of $199.41. TSLA is down 63% over the past 52 weeks.
The weekly chart shows a break below long-term support, line a, in October 2022 (point 1). TSLA hit its December weekly star band with a low of $101.81. It is now trying to return to the monthly pivot at $143.45 with a declining 20-week EMA at $181.92.
Relative performance (RS) broke its support, line b, confirming the price action, and has since made a series of lower lows. It shows no signs of a bottom as it is well below the descending MMA.
OBV fell below support, line c, ahead of prices. The current downtrend, line d, goes back to October 2021 as OBV stayed below its WMA for most of the time. With last week’s action, OBV ended above its WMA which is encouraging. I will be watching it in the coming weeks.
Daily analysis for both MSFT and TSLA is positive after last week, so they can certainly rally further before and after earnings. Weekly analysis for MSFT shows no signs of a medium-term bottom, so resistance at $262.50 may be a tough obstacle. OBV action in TSLA is encouraging and has been much weaker than MSFT over the past year. Therefore, in my opinion, it has a better chance of bottoming out in the first half of 2023.
Most analysts seem to have remained bullish on both stocks through their one-year decline. Therefore, I would recommend that both investors and traders confirm the buy or sell opinions of all analysts using technical analysis.