Stock market corrections can bring out the worst in growth stocks. They often choose market pullbacks to stab below their 10-week moving averages. This week saw several IBD 50 stocks knife below this key level of support, raising the question of whether they'll become growth stocks to sell.
XIBD 50 growth stocks that have stepped over the line this week include Tesla (TSLA), Century Communities (CCS), Smart Global Holdings (SGH), Alpha & Omega Semiconductor (AOSL) and Houlihan Lokey (HLI). They join other IBD 50 members that earlier crossed to the bearish side, becoming potential growth stocks to sell.
Why is the 10-week line and its related 50-day line so important? Stocks that remain above this average price line are widely considered to be in an uptrend. Falling below the line is a sign that the stock is in a downtrend. Many growth-stock investors, including big institutional investors like mutual funds, want to buy and own stocks with upward momentum.
Is Tesla A Growth Stock To Sell?
This isn't electric vehicle giant Tesla's first trip below the 10-week line. It sneaked below the line several times while forming its previous base. But it was able to regain the line before breaking out of a long cup base on Oct. 22 and running up a tidy 38% to an all-time high of 1,243.49.
From there TSLA stock drew a double-bottom pattern, according to MarketSmith chart analysis, from which it tried to break out Jan. 3. But no such luck this time. The breakout failed and the stock quickly reversed below the line and has since made just brief forays above it.
This past week started a new cliffhanging chapter below the line. Will TSLA stock bounce back above it and resume the uptrend? Or will it continue lower? One clue: The 10-week line has started to roll over, suggesting a longer consolidation could be in the offing. On top of that, the stock price has fallen below 1,000, where it previously found a bottom.
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Tesla Earnings Near
Here's possible inflection point for TSLA stock: Fourth-quarter financial results are due Wednesday after the close.
Earnings growth has remained in the triple digits the past three quarters with sales growth above 50%.
The consensus forecast of analysts tracked by FactSet put Q4 earnings per share at $2.26, up 182% from a year earlier. Sales are expected to balloon 58% to $16.99 billion.
Watch to see if the results come in above or below those expectations. A disappointing report could put a knife into the stock's hopes for a rally. A surprise of above views, on the other hand, could breathe new life in this market leader.
For the full year, Wall Street sees EPS surging 186% to $6.41, with sales swelling 68% to $52.97 billion.
Tesla is also a member of IBD's Big Cap 20 and Leaderboard lists of stocks.
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J.B. Hunt Transport Services (JBHT) has swatted at the 10-week average in the past couple of weeks but has so far held above it. One worrying sign: The trucking company's 10-week line has started to flatten.
On a brighter note, drug companies AstraZeneca (AZN) and Bristol Myers Squibb (BMY) are both forming bases. Both are new to the IBD 50.
Though it fell Friday, AstraZeneca remained within 8% of the 64.31 buy point of a cup base that started forming near the start of November. So far AZN stock remains well above its 10-week line, but the line itself is bearishly pointing downward. Earnings are due Feb. 10.
Bristol Myers also fell Friday. It's 3% above the 62.77 buy point of a cup with handle base. Earnings are due Feb. 4.
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