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Three stocks could ‘set the tone’ for earnings season

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Earnings season ramps up, and traders share what to watch

Get ready for an avalanche of earnings in the coming days.

IBM, Netflix, Chipotle, Honeywell and Schlumberger are just a sample of the top reports coming out. More than 60 S&P 500 companies and one-third of the Dow are releasing results this week.

Quint Tatro, president of Joule Financial, is watching three stocks closely this earnings season. He's using United Airlines, which reports earnings Monday afternoon, as a barometer for the rest of the airlines and, more importantly, consumer demand and the economic rebound.

"Airline stocks are not usually something that we're too keen on for quarterly earnings, but we really want to see what the companies say about the bookings that they're seeing, the demand they're seeing for this sort of reopening trade. I think that has the opportunity of setting the tone for the week," Tatro told CNBC's "Trading Nation" on Friday.

Analysts surveyed by FactSet anticipate United sales to decline by nearly 60% as the airline continues to face depressed demand tied to the pandemic. However, expected revenue of $3.2 billion will be much higher than the pandemic low of $1.48 billion in the second quarter last year.

Intel is the second company's earnings Tatro will be watching closely.

"We're Intel fans, we're investors. They've really been thrown into the doghouse of late, gotten some analysts downgrades," he said. "We want to hear what they have to say about the chip shortage and how that's influencing their business."

Investors have punished Intel over production delays and fierce competition from AMD and Nvidia. Raymond James analysts said last week that AMD had gained a "durable technical advantage" against Intel, which reports earnings on Thursday.

Netflix, his final pick, could give direction to the rest of the high-growth, momentum stocks. He says analysts may be underestimating strength in Netflix's business.

"We actually think that the Street could be way off here. We wouldn't be at all shocked to see an upside surprise, and then this set the tone for the FAANG names going forward into the quarter," he said.

Netflix, which reports Tuesday, is expected to report earnings of $2.97 a share, up from $1.57 a year earlier. Sales are forecast to have grown 24%.

It's not just the fundamentals that could drive Netflix higher. JC O'Hara, chief market technician at MKM Partners, says the technical setup for Netflix looks strong – he says this is a chart that is running up against resistance that's one catalyst away from a breakout.

"That is a prime example of a chart that has basically moved sideways over the last nine months … but currently is sitting under some significant overhead resistance," he said. "This pattern actually looks like the pattern we were entering this time last year. Again, multimonth consolidation, and then right around this time last April, we saw the breakout. It was a powerful breakout, it was momentum breakout and that was a breakout you wanted to buy. So I do see a similar setup here."

Netflix has risen just 1% this year, well below the S&P 500's 11% gain. It has fallen 8% since a January high.

Disclosure: Joule Financial holds INTC.

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