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Harley-Davidson (NYSE: HOG) has been in a downtrend for approximately two years now. The stock lost almost half of its value from the high to the low.
Harley will step into the earnings confessional on April 19, and shareholders have to be hoping that the earnings report will help get the stock out of the downtrend.
The consensus analyst estimate is for the company to earn $1.29 per share during the quarter on revenue of $1.5 billion. The estimate has been ratcheted down over the last 90 days. The consensus was at $1.36 three months ago.
We see on the daily chart that Harley used its 50-day moving average as support recently before moving higher over the last few days. The move higher caused a bullish crossover from the stochastic readings.
Where we see the downtrend most readily is on the weekly chart. The trend line is very clean and connects the highs from December 2014, August 2015 and earlier this month. The trend line is resting right at $52 now.
I should also mention that when the stock hit the trend line earlier this month it moved lower, creating a bearish crossover from the weekly stochastic readings.
One thing that could help Harley bounce back is the extremely pessimistic sentiment toward the stock. From a contrarian viewpoint, having plenty of skeptics is a good thing. Especially ahead of an earnings report it’s usually a sign of lowered expectations.
For Harley, the short interest ratio is currently at 10.75 and the number of shares sold short actually fell slightly from February to March. Analysts are also pretty skeptical toward the stock as nine have it rated as a “buy,” 12 have it rated as a “hold” and one has it rated as a “sell.”
So how do you play the Harley-Davidson earnings announcement? If you are a conservative investor that likes to shy away from risk, wait until after the release to see if the earnings are good enough to create some buying pressure. If there is enough buying pressure it could create a short squeeze and all those short sellers will have to cover.
If you are a trader that doesn’t mind taking a risk, you could buy the stock ahead of the earnings report and count on the company exceeding the lowered expectations. Even with this trade scenario, I don’t see too much downside risk, because there is so much skepticism toward the stock.
One thing that Harley has going for it is a very loyal customer base. It is hard to imagine the company struggling for very long thanks to that customer base, but the investors don’t seem to be as loyal as the customers.
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