E*TRADE Financial Corporation (ETFC) reports second quarter earnings after Thursday's closing bell, with analysts expecting the financial services giant to report profits of 88 cents per share on $707.8 million in revenues. If achieved, that would nearly match first quarter results during a period in which trading volume has contracted all across the market landscape, with S&P 500 and Nasdaq 100 fund volumes dropping steadily since peaking in February.
June's volatile market posted the highest monthly volume in the second quarter, while Nasdaq's recent rally has failed to attract heavy participation, in line with summer doldrums that often generate the lowest trading volume of the year. This downward trend could dampen buying interest in E*TRADE shares following an upbeat report, continuing an intermediate correction that started after the stock posted an all-time high in early June. (For more, see: E*TRADE Stock Up Double Digits on Rate, Trading Increases: Zacks.)
ETFC Long-Term Chart (1996 – 2018)
The stock came public at $28.75 in August 1996 and broke out of a narrow trading range at the start of 1997, entering an uptrend that topped out at $119.70 in the third quarter of that year. It lost nearly 100 points before bottoming out at $25.00 in October 1998, ahead of a parabolic uptrend that posted an all-time high at $722.50 in 1999, at the height of the internet bubble. It turned sharply lower with other darlings of that era when the bubble broke, completing a round trip into the 1998 low in October 2002.
The subsequent uptick posted impressive gains during the mid-decade bull market but failed to reach the prior high, stalling near the .382 Fibonacci sell-off retracement level and dropping into a trading range that broke to the downside in August 2008. The stock broke the 1998 and 2002 lows two months later, plunging to an all-time low at $5.90 before a weak bounce stalled at $29.00 in April 2009. It traded within those narrow boundaries for the next seven years, finally breaking out after the 2016 presidential election.
The stock price doubled into 2018, but the rally is barely visible on the long-term chart, with massive prior peaks dwarfing more recent price action. The uptrend stalled in May 2018 at the 200-month exoonential moving average (EMA), which marks major resistance, while the monthly stochastics oscillator crossed into a sell cycle in December 2017. However, it still hasn't dropped through the overbought line, which is needed to confirm a major sell signal.
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ETFC Short-Term Chart (2016 – 2018)
The stock topped out at $66.07 in May 2018 and tested that level twice in June, reinforcing resistance ahead of a downturn that cut through the 50-day EMA on higher-than-average volume. It has turned higher ahead of earnings, but on-balance volume (OBV) remains well below prior peaks, lowering the odds of an immediate assault to a new high. Even so, a bullish report could easily trigger a fourth test at range resistance.
Price action since May 2017 has tracked a rising trendline, with support now located at $56. That marks the logical downside target if earnings trigger a sizable sell-the-news reaction. That level has also aligned with the 200-day EMA, with a breakdown opening the door to the .382 retracement of the 2016 into 2018 uptrend in the upper $40s. Given bullish technicals, a ton of selling power would be required to reach that price level.
Traders should watch the prior highs if the stock enters rally mode and Wednesday's unfilled gap between $61 and $61.50 if sellers take control. Look for that level to act as resistance if a decline reaches last week's low at $59.11. A break of that support zone would be doubly bearish because it would force long-term stochastics through the overbought line, confirming a sell signal that could generate downside into year end. (See also: E*TRADE Making Big Bet on ETFs as Demand Explodes.)
The Bottom Line
E*TRADE stock topped out in May and dropped into a trading range, ahead of this week's earnings report. Range resistance in the mid-$60s may be significant because it's narrowly aligned with the 200-month EMA. (For additional reading, check out: Options Traders Can Visualize Risk With New E*TRADE Tool.)
<Disclosure: The author held no positions in aforementioned securities at the time of publication.>