Western Digital (WDC) Earnings Report Trading Blueprint

Data storage giant Western Digital NYSE: WDC reports Q4 2019 earnings after the close on Thursday, Jan. 30, 2020. Analysts expect $0.58-earnings per share (EPS) on revenues of $4.225 billion. Shares of the maker of hard drives and flash memory devices have been on a tear since the 46.65 lows in December 2019 after Q3 2019 earnings miss rebounding to a peak of 72 last week. Applied Micro Devices NYSE: AMD Q4 2019 earnings shortfall has cast negative sentiment onto WDC shares ahead of its earnings release. After such a lofty run-up, traders will be anxiously awaiting the reaction to forward guidance and conference call to gauge how their narrative impacts investor sentiment.

Macro Context and Influences

The S&P 500 ETF NYSEARCA: SPY is our macro market indicator. WDC earnings come the day after the FOMC rate decision, which can set the macro market narrative moving forward for risk-on or risk-off stance. Concerns over balance sheet expansion (quantitative easing) under the guise of short-term repo purchases being the true driver of the market rally lingers. The daily SPY stochastic has crossed down and needs to regain a close above 329 blunt the downdraft. Falling back under 325.90 can further flame bearish headwinds towards the 320.28 and 318.80 Fibonacci (fib) reversion levels and daily lower Bollinger Bands (BBs), respectively. Negative macro market sentiment can trigger further selling on WDC and blunt upside momentum.

Technical Analysis

Utilizing the rifle charts, WDC has a bullish monthly mini pup pattern with 5-period MA support overlapping with the 58.24 fib. The weekly stochastic is stalled at the 90-band with the 5-period MA overlapping the 67.73 fib line in the sand. This means if WDC closes under 67.73 this week, then the weekly stochastic would cross down. The daily stochastic has crossed down forming a bearish mini inverse pup with the 5-period MA resistance overlapping the 68.63 fib. Making the near-term momentum bearish with downside targets at the 64 “gatekeeper” fib and 62.53 fib overlapping daily lower BBs.

Sympathy Stocks:

The direct sympathy stock for WDC is competitor storage device maker Seagate Technologies NYSE: STX and memory chip supplier Micron Technologies NYSE: MU. AMD tends to move with MU, which can move with WDC most of the time. If WDC is too volatile, then consider trading MU as the sympathy peer stock since there’s more liquidity from the thicker float.

Trading Game Plan:

WDC has traded between 72 and 65.32 in the past week. The bearish daily mini inverse pup coupled with AMD earnings dumper sets the negative sentiment heading into earnings. However, focus on the reaction, not the reason. The bearish daily mini inverse pup makes the 5-period MA and fib at 68.63 a viable resistance to contend and the 62.63 daily lower BBs a rational downside target upon completion. The 64-price level is a super fib composed of multiple 0.618 and 0.382 overlapping fibs make it a prime bounce area on first tests and as well as 62.53 fib. These are viable downside targets if the third gapper reaction downtrend forms on the 60-minute and 15-minute rifle charts. If WDC manages to gap up, then consider the 69.60, 70.59 and 72.12 for initial short-sell reversion scalps back to the 5-minute 5-period MAs first, then gauge whether the 68.53 fib holds pullbacks to base for the third reaction uptrend. If WDC gaps down, then watch for initial reversions off the 65.40, 64.40, 63.90 and 62.40 ranges for reversion scalps. WDC can be very fast and volatile off the open as scalps can range from 0.25 to 0.75 before spreads tighten with time. MU can be swapped out for WDC for more liquidity and slower pace reactions. Add STX with MU to gauge when negative correlation forms with WDC. For example, if WDC is a dumper and coils off a key fib area, then look to play a long scalp on MU or STX. Make sure you pace yourself and limit trading volume to the most liquid periods of the day which is the morning session and stay out of deadzone.  

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