Despite a Stellar Earnings Beat, This Stock Looks Stuck

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So far, 2023 has been a great year for Intuit (INTU).

The financial software company is behind products like QuickBooks and TurboTax. And it has seen its share price gain almost 60% at its peak since the start of the year.

That has added over $50 billion in market value.

INTU got caught up in the market rout in October. But then INTU surged again. And it gapped higher after beating estimates in its recent Q1 earnings.

But now that rally has started to fade. So let’s check INTU’s prospects from here…

A Gentle Climb

INTU’s rally started right back in early January.

In the chart below, the gentle climb of the 50-day Moving Average (MA, blue line) shows INTU’s steady rise in the first half of the year.

Yet its rally started to gain more traction in early July…

Intuit (INTU)

Source: eSignal

That July surge higher coincided with two bullish signals:

1. The 10-day MA (red line) crossed the 50-day MA and started to accelerate. That move dragged the 50-day MA higher.

2. The Relative Strength Index (RSI) stayed in the upper half of its band (above the green line), showing sustained buying momentum.

But as the chart shows, INTU’s rally peaked in September (‘A’). The RSI formed an inverse ‘V’ and retraced from overbought territory (upper grey dashed line).

INTU tried to rally again in October off the back of increasing momentum (RSI). But instead it rolled over again.

This peak at a lower high (‘B’) coincided with yet another reversal in momentum.

Along with the rest of the market, INTU got pulled into an accelerating downtrend as it approached the end of October.

And INTU turned on a dime when it bottomed out on October 26.

That sudden reversal corresponded with the RSI forming a ‘V’ and rallying from oversold territory (lower grey dashed line).

The strong buying momentum behind INTU’s current rally caused the RSI to track from one extreme (oversold) to the other (overbought) in less than a month.

Take another look:

Intuit (INTU)

Source: eSignal

That sent the 10-day MA back above the 50-day MA at a sharp angle.

But after initially gapping higher off its Q1 earnings, INTU finished that day trading on its lows.

And since then, it has continued to drift lower.

So now with a potential reversal forming, what should we look for from here?

Softer Outlook

When a stock initially surges after its earnings but then retraces to its daily low, you know that buyers are becoming exhausted.

In this case, management’s softer outlook for the coming quarter tempered INTU’s strong earnings beat.

Without a fresh wave of buyers coming in, the stock is stuck and vulnerable to a pullback.

That’s especially true when the stock price and RSI are heading in different directions (orange lines). That’s a common reversal pattern.

From here, the RSI breaking lower back towards support (green line) could quickly see INTU trade back below $550.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

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