The latest earnings season has come and gone. Now what?
It's a good question, especially with the market in stall mode, with the S&P barely budging in over a month. This stagnation comes after investors seemed to have applauded the majority of earnings reports telling me that the strong numbers had already been anticipated.
The good news for the bulls in this month long consolidation, which included a new record high on all of the major indexes, also included a few tests of the 20 day moving average on the S&P which held twice. On the other hand, the bears will argue that the market has simply run too fast, with the S&P up 10% and the NASDAQ up almost 15% since the late June bottom, and that a decent correction is needed to get the market moving again.
Let's not forget that the rally of late has come at an historically bearish time of the year and September can be rough as well. But many traders and analysts will tell you that this year is different as investors across the globe search for yield which can't be found at banks or in government bonds. So instead investors are piling into stocks.
All of this might be fine and good and makes some sense with rates so low and with Central Bankers around the world in easing mode and with the Fed continuing to be reluctant to raise rates at the current time. And traders seem to be buying into it, with the VIX not that far away from all time lows and the equity only put/call ratio consistently hanging out in the .5 to .6 range; there's no fear out there!
When looking at it all I come to the conclusion that it is time to err on the side of caution. The S&P is only a dozen or so points from its all time high but is almost 200 points off of the late June bottom. So it comes down to reward to risk which to me is decidedly to the downside. And we might actually have to wait until the next earnings season in October to see what kinds of numbers companies are able to produce before the market can move appreciably higher.
Speaking of earnings, one of the ways to navigate an iffy market is to focus on those companies that beat their forecasts and have strong charts since traders seem to gravitate to those stocks that hold up well when the market weakens. At EarningsBeats we scan the market for companies that fit that profile and then provide these stocks to our members. If you want to see a sample of our exclusive Candidate Tracker just click here.
At your service,
John Hopkins
EarningsBeats
