Earnings season is now starting. It’s a time of total and complete hype. I remember when I first got into trading and investing in the 1990’s, I read a bunch of old school fundamental investing books. All of them said ignore earnings reports and don’t make buy or sell decision based on them as they are just noise. The thing is, though, to invest like that you have to be investing in a company that has real long-term prospects and have gotten in at a good price.
In the 1990’s, I was into internet stocks and they were hype and valuations were bubbles. The stocks moved on earnings and rumors and I was playing the shorter-term trends and the charts. And really the financial media focuses all on earnings at this time as they create news they can talk about.
Companies also work in tandem with stock analysts to provide “good” news by beating purposely low earnings estimates. That creates news that can provide a pop, which can be an exit point for insiders, especially if the hidden unspoken news is falling revenue and growing debt. Accounting games are played by the most sleazy to cover it up, and some really sleazy companies made a game of it. GE and Tesla are two that come to mind. But IBM did it too. It’s a popular Wall Street game.
When it comes to earnings the thing to watch for is how stocks react to them. If the stocks are able to gap up and keep going up its good for the market and if the news gets sold – good or bad – it’s a bad sign. We saw some of that happen last July with many individual stocks (remember internals already peaked in June) and it could easily happen again.
The two big earnings stocks of yesterday were JPM and SCHW and both sold the news. More banks are coming out today, but earnings season really will get going next week.
In the big picture I don’t think the news will really have a huge impact on the market averages. The reality is the big GDP reopening boom stalled out in the third quarter and we are now seeing a higher inflation rate than GDP growth rate. This is likely to be the trend now for years. You see the Fed wants to reduce QE, but it can’t really tighten too much without crashing everything so it’s trapped in a dovish policy. In time that will boost gold.
We’re kinda set with a drifting trend right now for the US stock market. That’s most visible with the Russell 2000. I showed you a 20-year chart of that a few days ago, with narrowing Bollinger Bands, but on a one and a half year chart you may be more easily able to see this in the IWM ETF.
This chart shows you very clearly how the Russell is locked in a narrow range. The next BIG move will be set when it breaks to the upside or downside of its 200-day Bollinger Band. Personally, I am just watching for now, holding what I already own. I want to see how things unfold after the next FOMC meeting in the first week of November, before considering any big changes.
I talked about this along with two other key charts earlier this week. To see them go here.
At the same time this week gold, silver, and mining stocks have turned up, as you can see from the GDX ETF. I think this bodes well for my stock pick for this month. It’s just sitting there with volume coming in. For the info on it click here.
-Mike
