Earnings season is in full swing: what to expect

At the end of the trading week, better-than-expected gains from Big Three banks Delta Airlines (DAL) and Pepsi Co (PEP) added even more excitement to the end of an exciting week of trading.

The only sticking point is the University of Michigan’s consumer sentiment survey, which showed confidence in the economy is booming but suggested inflation may not be as weak as the consumer price index and producer price index indicated earlier this week. The news prompted a mild sell-off in the S&P 500 Index ($SPX) and Nasdaq Composite ($COMPQ), but the Dow Jones Industrial Average ($INDU) closed higher, its best weekly performance since March. The communications services and technology sectors remain strong, which has led to increased investor optimism in the financial market.

You’ve probably heard about how the seven largest stocks fueled the stock market rally. But it looks like other stocks are joining this rally as well. If you look at the Direxion Nasdaq-100 Equal Weighted Index (QQQE) chart and compare it to the Invesco QQQ Trust (QQQ), both have moved in sync. And the accumulation/distribution line at the bottom shows that accumulation is increasing – an indication of a good uptrend.

CHART 1: Market participation is increasing. QQQE and QQQ are moving in sync and accumulation is trending up. Chart Source: StockCharts.com (Click on the chart to view the live version). For educational purposes.

There is a lot of positive dynamics in the market. Many stocks are making new all-time highs or 52-week highs. If you run these two scans, you might be surprised at how many stocks and ETFs meet the scan criteria.

How to run scans. Scroll down to Sample Scan Library in your Dashboard or Charts & Tools. Click Browse Scan Library and run the New All-Time Highs and New 52-Week Highs scans.

With so many stocks and ETFs making new highs, it’s hard to argue against a bull market. Great traders trade with the trend. And when the market has strong momentum, it’s best to seize trading opportunities.

There is a likelihood that many of these stocks will reach overbought levels, which could make them candidates for a downside. Using shorter moving averages like the 20- or 25-day moving average can act as an initial support level for a pullback. An example is the daily chart of Nvidia Corp. (NVDA) below.

IS NVDA READY FOR RETIREMENT? NVDA may enter overbought territory. Keep an eye on the stochastic oscillator, especially if the stock falls back to its 20-day moving average. Chart Source: StockCharts.com (Click on the chart to view the live version). For educational purposes.

NVDA has been among the top SCTR candidates since February 2023. If you look at the stochastic oscillator at the bottom, you can see that the stochastic oscillator fell as the stock fell back to its 20-day moving average. But the stochastic failed to reach the 50 level. As NVDA bounced off the 20-day MA and surged higher, the stochastic oscillator turned higher and moved into overbought territory. Looking at the stochastic oscillator, the stock could see further upward movement. If it falls back to the 20-day moving average, it could present a buying opportunity.

Great traders trade with the trend.

And as smaller companies, other sectors like industrials and international stocks show signs of catching up with the larger companies, there might be some cheaper stocks to grab.

Winning season is here

Earnings have been solid so far this quarter, but that’s just the beginning. The next week is full of income. Wall St. will focus on guidance as it provides insight into what to expect going forward. In a rising market, some bad news could send stock prices down. So it’s a good idea to keep the big picture in mind. A few points to keep in mind as we head into the middle of earnings season:

• The US Dollar Index ($USD) has fallen below 100. The last time the index was at these levels was in April 2022. The lower dollar pushed gold, silver and copper prices higher.
• Crude oil prices showed signs of recovery but fell after encountering resistance at their 200-day moving average.
• Bond yields are also lower. The 10-year US Treasury yield index ($TNX) is trading at around 3.8%, well down from the over 4% levels it hit in early July.

The conclusion

If the S&P 500 closes above 4500 there is a chance it will hit its all-time high of 4818.62. The index may face resistance near the 4637 level (March 2023 peak), but it may not be a very strong level. And if the S&P 500 falls, consider the 4200 level as support, which coincides with the 200-week moving average. It can also be worth keeping an eye on earnings. A few heavyweights are reporting next week (see below for a list) and any mention of a weak outlook could have implications for the stock market.

Summary of the weekend

US equity indices mixed; volatility down

• $SPX down 0.10% to 4505.42, $INDU up 0.33% to 34509.03 (best week since March); $COMPQ fell 0.18% to 14113.70
• $VIX fell 2.28% to 13.30
• Best performing sector of the week: Consumer Discretionary
• Worst performing sector of the week: Energy
• Top 5 Large Cap SCTR Stocks: Super Micro Computer, Inc. (SMCI), NVIDIA Corp. (NVDA), Coinbase Global Inc. (COIN), Palantir Technologies, Inc. (PLTR), DraftKings Inc. (DKNG)

On the radar next week

• Reporting season is in full swing. Some companies reporting next week: Bank of America (BAC), Morgan Stanley (MS), Charles Schwab (SCWB), Goldman Sachs (GS); Tesla (TSLA), Netflix (NFLX), United Airlines (UAL), American Airlines (AAL), Taiwan Semiconductor Manufacturing Co. (TSMC), Johnson and Johnson (JNJ) and many more.
• US retail sales in June
• June: Start of construction in the USA
• July Philadelphia Fed Manufacturing Index

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be applied without first assessing your personal and financial situation or consulting a financial professional.