When the market’s in a distribution phase like it is now, stocks with weak technicals tend to have the upper hand over stocks with strong technicals. Recent price and volume trends in satellite TV provider DirecTV (DTV) are looking a bit suspect.
The company reports third-quarter earnings Tuesday before the open. To its credit, it’s expected to deliver 20%-plus annual earnings growth this year and next, but sales growth has been decelerating in recent quarters due to a tough competitive landscape. It’s expected to decelerate again this time around, rising 8% from a year ago to $7.4 billion. Earnings should be up 33% to $0.93 a share.
DirecTV’s main growth driver is Latin America. In the second quarter, the company added 645,000 subscribers in the region — up 37% from a year ago. Growth has been fueled by stronger middle market demand in in Brazil, Argentina, Colombia and Venezuela. Its total subscriber base in Latin America rose 36% to 9.1 million. That’s the good news. The bad news is sluggish U.S. subscriber growth. The company lost 52,000 subscribers in the second quarter due. Its U.S. subscriber base totaled 19.9 million, up 3% from a year ago.
Current longs should be concerned about recent signs of institutional selling in the stock. Two recent two distribution weeks seen in its weekly chart mar its technical picture. Shares fell 3.4% in above-average volume during the week of Sept. 21 and 6.2% during the week of Oct. 5. The stock hasn’t broken down yet because it’s only 9% from a 52-week high. But it’s starting to meet with resistance at its 10-week moving average, a potentially troublesome sign because it points toward slack buying demand. Price action like this can be a precursor to additional price weakness, especially with prior signs of institutional selling.
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