Bearish Technicals Cloud Intuit (INTU) Outlook

Nasdaq 100 component Intuit Inc. (INTU) reports fiscal fourth quarter 2020 earnings after Tuesday's closing bell, with analysts looking for a profit of $1.12 per share on $1.57 billion in revenue. The application software provider sold off after meeting lowered fiscal third quarter guidance in May but recovered quickly, continuing an uptick that posted an all-time high last week. Expectations are high ahead of the earnings news, with market players hoping that the U.S. economy will continue to recover.

The stock is vulnerable to long-term economic cycles, which affect both retail and commercial tax preparation and payroll services. Intuit shares fell nearly 40% in the first quarter when market players worried about a deep recession, but the stock has recovered in reaction to rising hopes for a COVID-19 vaccine. A second wave of infection could throw a wrench in these bullish expectations, triggering a failed breakout and high-percentage retracement.

Surprisingly few Wall Street analysts cover the $86 billion company, with a "Strong Buy" consensus based upon five "Buy" and one "Hold" recommendation. No analysts are telling shareholders to sell positions and retreat to the sidelines. Price targets currently range from a low of $270 to a Street-high $350, while the stock opened Tuesday's session less than $20 below the high target. This placement raises the potential for downgrades if this week's metrics fail to beat estimates.

Inuit Long-Term Chart (2000 – 2020)

A long-term uptrend topped out at a split-adjusted $45 in 2000, marking a high that wasn't challenged for the next 10 years, ahead of a deep slide into the lower teens. A mid-decade uptrend failed less than 10 points below the prior high, giving way to a four-year low during the 2008 economic collapse. Steady buying pressure off that level finally reached the prior high in 2010, yielding a breakout that eased into a rising channel in 2013.

A 2015 channel breakdown ended at a 10-month low, ahead of a recovery wave that entered another rising channel after the 2016 presidential election. Volatility increased sharply in the fourth quarter of 2018, with a vertical recovery wave in 2019 and equally vertical decline in the first quarter of 2020. The stock completed a V-shaped recovery pattern into the prior high in July and broke out last week, hitting an all-time high at $334.15.

Intuit Short-Term Chart (2018 – 2020)

The on-balance volume (OBV) accumulation-distribution indicator is telling a bearish tale, despite the breakout. OBV posted new highs between September 2018 and February 2020 and rolled into a distribution phase that hit a 13-month low in March. Price then surged higher in a bounce, while the indicator slumped badly, testing the first quarter low in July, when the stock was trading at a six-month high. The subsequent breakout has set off an extremely bearish divergence, predicting that the rally could easily fail.

In addition, the monthly stochastic oscillator is nearing an extremely overbought level that triggered long-term sell signals in 2000 and 2014. Considering these factors, investors should exercise caution into and after this week's confessional because the stock could post a long-term top ahead of an intermediate correction. Even so, the red trendline of higher highs appears to show clear sailing up to $375. 

The Bottom Line

Intuit stock has broken out to an all-time high ahead of this week's earnings report, but underlying technicals warn that the uptrend has little or no volume support.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.