With just one day to go until earnings season starts to pick up, sell-side shops decided to give it one more push, and via a futures-led market, tried to lure investors back in. While volume was clearly lacking, oversold sectors and groups bounced the most.
Starting off with a glance at the daily chart of the S&P 500 index, Friday’s post-March-payroll low at the key 1,538 level is still flexing its muscles. If and when bears manage to push the index below this level, they may be able to build downside momentum.
Until such time, the bulls remain large and in charge. On the upside, the index now looks to have room to move up to 1,580, followed by 1,600, although given the still worsening market internals, one would be wise to exercise caution and not chase too high.
Many sectors and groups of stocks that broke their November uptrends last week bounced hard this week and right into the underbelly of the uptrend. While these bounces can quickly turn more seriously bullish, for the time being, a simple retest of a broken uptrend remains bearishly biased.
For example, the iShares Dow Jones Transportation Average (NYSE:IYT) rallied a little more than 1% so far this week and is now snuggling up to its November uptrend line.
More concerning for the bears is the action in the financials. The Financial SPDR (NYSE:XLF) also broke its November uptrend last week, but is already well above it and, in fact, flagging a bullish formation.
With both JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC) on deck to report earnings this Friday, I would caution against building up any major long or short positions in financials for the time being. On average, holding trading positions through earnings announcements is a losing game. Much higher probability setups occur after the earnings announcement has past.
My current cautionary stand, beyond the warning signals from the bond market discussed on Monday, also comes from the commodities corner. While stocks have steadily climbed, commodities, as measured by the iPath DJ-UBS Commodity Index Total Return ETN (NYSE:DJP), continue to slip lower.
On the chart above, the most recent downtrend/resistance line is clearly marked. Simply put, given that the index is composed of 32.5% agricultural and 30.5% energy sources, the simple lack of demand does not synch well with the continued rise in equities.
In summary, the waiting game for earnings season is almost over and we shall soon know whether global/domestic growth will confirm the rosy forecast that equities are painting.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.