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Agilent Anticipation



Note: the following analysis is formulated as an assimilation of Fibonacci, DeMark, Elliott Wave and other technical indicators. It is offered as education and not intended as advice in any way.

Agilent (A) reports tonight and in the spirit of continuing our quest to understand that fundamentals lag stock prices (see CSCO, ERICY, and DELL from last week), let's see if we can 'predict' how the Street is going to receive A's earnings report tonight.

Based on the A chart, we can see a clear "5" wave move down from the Jan 2004 peaks to the Aug 2004 lows. That strongly suggests that A's long term trend has reversed down and that new lows beneath the 2002 lows could be seen in time. Despite this long term bearish implication however, the shorter tem horizon is more bullish. Specifically, the bounce that started in Aug 2004 does not yet look complete, as it has failed to ever reach the 38.2% retrace level (at $26.88) for a minimum Fibonacci retracement. Therefore, from the Aug 2004 lows, we can expect an ABC (3 wave bounce) that targets the $26-88 to $31.42 area before the larger bearish trend re-asserts itself.

How then does A's earnings report play into this interpretation? We are expecting an ABC bounce from the Aug 04 lows; so far we have the A and B waves of that move complete, with the final C wave up likely starting from the lows registered on Jan 24th at $21.43. Therefore, the conclusion we come to is that A's stock is likely to rally from that $21.43 low to the next Fibonacci target of $28.40 over the next 2 months. It is possible that A's results cause a short term sell-off but any sell-off would likely be supported above the $21.43 lows from January 24th and then lead to a smart rally toward our eventual target. But equally possible is that those results cause a rally too, speeding up the move toward our higher $28.40 target. In either case, the fundamental results that A is likely to report are being offered within a psychological environment that is largely optimistic. On balance and in time we expect a positive reception from the Street and a positive reaction from the stock.

The stock is saying A's results will be 'good enough'. Now let's see if they really are.

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No positions in stocks mentioned.

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