There is a good feeling in the air as it relates to markets, and it’s not just the indices. Sure, we have most markets at/near all time highs, but here we are about to start a big earnings season. Just what did these companies accomplish in the first quarter and more importantly what is their outlook for the remainder of the year? Last week say a trickle of reports from the likes of Alcoa, Wells Fargo and JP Morgan. While the numbers were good the usual ‘caution’ prevailed in their respective conference calls.
Earnings season is always never-wracking, no rest at all and the anticipation is stressful. But it is in these moments that big moves happen and with options, the BIG money is made! Market volatility is low, the crowd is sanguine about earnings and is not expecting a big market blowup.
This coming week will give us a good read on the quarter with the release from names such as Google, GE, Coke, Ebay, Abbott Labs, Goldman Sachs, Yahoo!, Microsoft, Chipotle and IBM. Good news may be sold off as many of these companies have risen sharply over the past few months. However, the investing/trading backdrop is still favorable to equities so I suspect any dips will likely be bought vigorously.
As the markets hit dizzying heights let’s take a look at how it may perform during earnings season. We often find markets pulling back just before the start of earnings and with volume coming in. When the ‘confessionals’ start is when we see more participation and volatile short-term moves. Just looking at a chart of the SPX 500 over the last year we see the market moves during earnings. What is deceiving of course the correlation, or lack thereof. Simply put stocks have been moving on their own since the correlation bubble imploded in January 2012.
What’s it mean? Basically a stock market move won’t necessarily push stocks around for no apparent reason. We’ll see stocks do well, do poorly and stay put. A great scenario for a stockpicker, especially one who weighs the evidence using charts and technical screens.