Jan

Stocks and Markets at Critical Juncture Ahead of Earnings Season

Last week was decidedly rough for the longs and the market closed right on the proverbial fence-post. Looking through literally hundreds of charts this weekend I see a ton of stocks right at the 20-day and 50-day moving averages. The indexes are right there too with the DOW a few ticks below them and the Q’s a few ticks above them. The 20-day and 50-day are the conventional lines in the sand for many traders. The S&P500 is particularly interesting because the moving averages have converged at Fridays close.

The stochastics don’t look very encouraging at this point and the "news" is anything but good on the overall economy. Monday will be interesting to say the least. Wait and see is probably the best course of action.

The scans we run to find potential trades picked up almost nothing last week. The end of December was the opposite. We had so many potential trade set ups that we had to filter out many of them to keep the number of trade plans reasonable. The first full trading week of the New Year saw most stocks in short-term overbought territory and we barely found anything that looked good to the long side. We let a few into the system and two of the three did exactly as expected, never hit the entry and traded lower to get scratched.

Going into next week we are in the same boat. The scans are not picking up an anything we would consider high-probability. This will most likely change in a few days but Monday is anyone’s call. One thing to keep in mind is the upcoming Earnings Season. Ahh, we love earnings seasons because you usually get some real fireworks. Much of the time stocks trade with a high correlation to the overall market but when earnings releases come out it can have a dramatic effect based on company specific news. Be sure to check out the look-ahead earnings calendar in the Research Lab to get a heads-up on all the action. It’s hard to imagine a lot of companies will have great earnings and even harder to imagine positive forward visibility. The analysts will be hard at work with revisions based on guidance at the conference calls. Keep a close eye on the earnings picks in the next few weeks as these will be companies that are actually growing earnings year over year, beating estimates, and trading up from the open.

There are some charts setting up for good trades but they aren’t quite there yet. Keep your eye on the Waiting Plans each morning before the market open to see any trades that are on-deck.