Western Digital Corporation (WDC) shares fell more than 2% on Tuesday morning after the company reported worse-than-expected third quarter earnings. Revenue fell 27% to $3.67 million, missing consensus estimates by $10 million, and earnings per share came in at 17 cents. Sales volume, average selling prices and gross margins were all below analyst consensus estimates for the quarter.

Last week, Baird analysts downgraded Western Digital stock from Outperform to Underperform and cut their price target from $50.00 to $40.00, citing the ongoing deterioration in NAND fundamentals. Intel Corporation's (INTC) earnings report last week – which also came in much lower than analysts were expecting – suggested that NAND prices could continue to see double-digit declines this quarter amid very high inventories.

Shares of competitor Seagate Technology plc (STX) surged about 5% during last Tuesday's session after the company beat earnings estimates. However, many NAND chipmakers experienced significant declines last week following the analyst downgrade.

Technical chart showing the performance of Western Digital Corporation (WDC)
StockCharts.com

From a technical standpoint, the stock broke down from trendline and 50-day moving average support to its pivot point at $48.44. The relative strength index (RSI) continued to moderate to 44.22 – but remains above oversold levels – while the moving average convergence divergence (MACD) experienced a bearish crossover. These technical indicators suggest that the stock could see more downside over the coming sessions.

Traders should watch for a breakdown from trendline, moving average and pivot point support levels at around $48.50. If that happens, this stock could move lower to retest reaction lows and S1 support at $44.07 over the coming sessions. If the stock rebounds from these levels, traders could see a move toward R1 resistance at $52.43 to close the gap, but that scenario appears less likely to occur at the moment.

The author holds no position in the stock(s) mentioned except through passively managed index funds.